PayPal Stock: A Good Way to Play the Crypto Bull Run?

For the new year, PayPal (NASDAQ:PYPL) stock has been somewhat choppy. Note that PYPL stock is off marginally.PayPal logo

But of course, last year was particularly strong. PayPal stock was able to benefit from the surge in interest in digital payments, which have propelled other fast-growing operators like Square (NYSE:SQ). For 2019, PayPal stock went from $110 to 235%, with the market capitalization coming to a hefty $275 billion.  The company is now one of the world’s largest financial companies.

So then, what now? Can we expect a strong performance in 2021? I think so. Although, the returns may not necessarily be as robust. Let’s face it, things have gotten a bit bubbly lately — and it seems likely there will be a correction at some point.

But then again, PayPal is a more mature player and should be better able to handle the volatility. The company is also is leveraging its platform into growth areas like cryptocurrencies. This is perhaps the most interesting long-term driver for the company.

So let’s take a look.

The Crypto Revolution

Early last year, the prospects for bitcoin looked grim. The price hit about $5,300 as the Covid-19 pandemic emerged.

But with the aggressive fiscal stimulus from the U.S. government and the low interest rate policy of the Federal reserve, bitcoin saw a spike in interest. There were fears of inflation and economic stability. The investment thesis was that the bitcoin could be a haven versus the dollar.

By the end of last year, some of the world’s savviest investors started to ramp their buying of this cryptocurrency, such as Paul Tudor Jones and Stanley Druckenmiller. It was a big-time validation. The expectation was that this would be only the start of the institutional interest in cryptocurrencies.

As for PayPal, the company launched its own service to buy and sell bitcoin, Ethereum, Bitcoin Cash and Litecoin. The minimum amounts were only $1. And all of this could be done with the convenience of the PayPal app.

No doubt, the company has various core competencies to make this effort a big success. For instance, PayPal will leverage its base of 26 million merchants across the world. This will be essential in making cryptocurrencies mainstream.

According to the CEO of PayPal, Dan Schulman: “The shift to digital forms of currencies is inevitable, bringing with it clear advantages in terms of financial inclusion and access; efficiency, speed and resilience of the payments system; and the ability for governments to disburse funds to citizens quickly. Our global reach, digital payments expertise, two-sided network, and rigorous security and compliance controls provide us with the opportunity, and the responsibility, to help facilitate the understanding, redemption and interoperability of these new instruments of exchange.”

A key part of the strategy is to forge partnerships with central banks and regulators. Based on research from the Bank for International Settlements, about 10% of the world’s central banks expect to issue digital currencies within the next three years. In other words, the market potential is enormous – and PayPal is positioned nicely to get an outsized portion of the benefit.

The company has also been working to evolve the cryptocurrency ecosystem through its PayPal Ventures fund. In 2019, there was an investment in TRM Labs, which helps with preventing fraudulent transactions.  There was also a recent deal for TaxBit. This startup is focused on tax automation systems for cryptocurrencies.

Bottom Line On PayPal Stock

In terms of revenue generation, cryptocurrencies will remain a small part of the business for PayPal for the next few years. Keep in mind that the company is known for taking a methodical approach to new market opportunities. A prime example is its work with Venmo.

But cryptocurrencies will need a strong infrastructure. And PayPal has all the right capabilities and assets to help build it. Thus, for those looking for a play on the growth of cryptocurrencies, this stock looks like a good bet right now.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence BasicsHigh-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL

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