The online payments giant (NASDAQ:PYPL) rolled out a crypto service in the US in October 2020, allowing customers to buy and sell a limited selection of cryptos. It has since expanded the offering to the UK, with more jurisdictions planned.
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Customers apparently like the feature. As of 31 December 2022, PayPal’s crypto holdings account for two-thirds of its total liabilities, which come to $902 million. Of the $604 million of crypto liabilities, $250 million is Bitcoin-denominated, according to its annual report to the SEC.
According to data at Invezz.com, that technically means that PayPal is sitting on the third-largest Bitcoin stash of any public company.
PayPal technically holds the third-largest Bitcoin stash among public companies
While the amount of Bitcoins held was not revealed in the report, the dollar value came to $250 million. With Bitcoin trading at $16,600 at the end of the year, it can be estimated that the company held roughly 17,500 Bitcoins.
In terms of known public companies, that would place PayPal behind only Microstrategy (132,500 BTC) and Galaxy Digital (40,000 BTC). Of course, the difference is that PayPal has not invested in Bitcoin, it merely holds it as a liability.
Moreover, PayPal doesn’t hold the Bitcoin itself, but rather stores the Bitcoin through a third-party custodian, according to the report.
Intriguingly, PayPal made a point to clarify that this was not risk-free, with the report coming not long after the cryptocurrency industry was rocked by the collapse of former top-3 exchange FTX, which lost $8 billion of customers’ assets. Its CEO has been arrested and is currently under house arrest.
We cannot be certain that these contractual obligations, even if duly observed by the custodian, will be effective in preventing such assets from being treated as part of the custodian’s estate under bankruptcy or other insolvency law
In a further nod to the chaos that has struck the crypto industry over the last year, PayPal explained why this was the first time it had included a breakdown of its crypto holdings.
Due to the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks, we recognize a crypto asset safeguarding liability to reflect our obligation to safeguard the crypto assets held for the benefit of our customers.
PayPal fight layoffs and wider industry pullback
Like most tech companies, 2022 was a year to forget for PayPal. The sector is especially sensitive to interest rate policy, and with the Federal Reserve hiking rates at a rapid pace, the industry has been squeezed.
PayPal’s share price surged during the pandemic years of 2020 and 2021, however it lost 77% of its value between July 2021 and July 2022, falling from $309 per share to $69. It announced two weeks ago it was laying off 2,000 employees, 7% of its workforce, as part of the wave of redundancies sweeping the sector.
It currently trades at $80 per share, with investors enjoying some relief thus far this year as the market bets that interest rates will taper off sooner than previously expected.
PayPal’s stablecoin plans abandoned
Not so long ago, PayPal had plans to move further into the crypto industry. It had been exploring the launch of its own stablecoin.
Its senior vice president of crypto and digital currencies had said previously that PayPal has “not yet seen a stablecoin out there that is purpose-built for payments”, and told Bloomberg that “we are exploring a stablecoin. If and when we seek to move forward, we will, of course, work closely with regulators”.
It appears that the issue of regulation has put an abrupt end to those plans, however. The company has reportedly pulled the plug after Paxos, the issuer of the Binance-branded stablecoin BUSD, was ordered to stop minting new stablecoins. It is also being sued by the SEC for breaches of securities law.
PayPal’s interactions with crypto nicely symbolise how murky both security and regulation within the swiftly-involving sector are.
The company felt the need to break down its holdings and caveat the risks of third-party custody following the chaos of the multitude of bankruptcies last year, with customers still reeling and the security of one’s assets front and centre.
While regulators will have a lot to say about that in the future, the apparently brief PayPal flirtation with stablecoins highlights the grey area that is regulation. Binance’s stablecoin appears to be winding down, with its market cap already falling.
It’s no surprise that PayPal no longer wants to wade into the area, with the myriad legal risks and uncertainty that it would offer, amid a time when the company and tech industry as a whole is already fighting a challenging battle with regard to the wider macroeconomic climate.
Nonetheless, PayPal has been more open to crypto than most companies, so it will be interesting to see if it has further plans within the space.