PayPal (PYPL 3.54%) recently announced that users would be able to buy, sell, and hold bitcoin in their Paypal accounts. But this wasn't the biggest news. PayPal also said that it plans to eventually make bitcoin and other cryptocurrencies usable as a payment method for purchases through PayPal's 26 million merchants.
Could this finally be the catalyst that leads to widespread adoption of cryptocurrencies as a method of payment? In this Nov. 30 Fool Live video clip, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the impact that PayPal and fellow fintech giant Square (SQ 2.54%) have had on cryptocurrencies, and what PayPal's recent announcement could mean for the industry.
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Jason Moser: But Matt, let's talk first and foremost this week, PayPal and Square. A couple of companies we always enjoy talking about, numbers love them, listeners love them for a lot of obvious reasons. PayPal CEO, Dan Schulman, Square CEO, Jack Dorsey. They've been very clear about their belief that they see cryptocurrencies playing a role in the world to some degree. We've seen some news out from both companies recently in regard to bitcoin and cryptocurrencies. Let's talk a little bit about the latest. What's the latest with what these companies are doing.
Matt Frankel: Square isn't exactly new news. They recently bought $50 million of Bitcoin for their own balance sheet as more of an investment on their own. But just before we get into PayPal's news, let me give you some context of how important bitcoin is that Square jumped into it. In the third quarter alone, over $1.6 billion of bitcoin went through Square's network, meaning Cash App customers bought and sold that much. That is 11 times as much as it was a year ago. Remember Square is doing this for two years.
Jason Moser: Wow.
Matt Frankel: That's a pretty big surge in popularity. That $1.6 million made Square $32 million of gross profit, which isn't a great margin, but it's not bad. I mean, that's a needle mover.
Jason Moser: Well, and that's bitcoin trading back and forth. That's just individuals trading bitcoin back and forth.
Matt Frankel: Correct. That's Cash App users, to be specific, buying and selling. One interesting thing I saw a hedge fund called Pantera Capital estimates that since Square launched two years ago, they now account for 40 percent of bitcoin volume in the US. Forty percent from Square. I know I'm much more of a Square fan than a PayPal fan, but being honest, PayPal is the bigger company.
Jason Moser: Yeah.
Matt Frankel: This is why I wanted to say this first because PayPal's news could be even more significant. On October 21, I believe it was, PayPal announced that it was going to launch the ability for users to buy, sell, and hold bitcoin. Similar to what Square allows its cash app users to do.
Jason Moser: Yeah.
Matt Frankel: But the real detailed that's important is in the same press release they said that they have plans to make bitcoin and cryptocurrency usable as a payment method to PayPal's 26 million merchants. That could be huge for the currency. Right now, you can't go to just any merchant with a Square terminal and pay with bitcoin without doing some intermediate step, like getting a debit card or something like that. This could be a huge needle mover for one mainstream adoption of cryptocurrency. I don't necessarily see it as a mainstream, big revenue source for PayPal. But for cryptocurrency as an industry, it could be a game changer.
Jason Moser: Well, yeah, I mean, to your point, we talk a lot about needle movers and how companies may introduce some functionality or capability. Maybe it's not a big needle mover, but ultimately what it does is it creates engagement. It keeps people within that universe using their products and services, and I can certainly see where that would be. Maybe the point of focus in the near-term for companies like Square and PayPal, getting that functionality in there, to me, it feels like a very easy bet. Doesn't feel like there's really any downside as long as you understand the space. But it also feels like there are challenges for crypto, at least in the near-term.