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The game Paypal currently plays with Crypto is the closest thing to printing money I have ever seen: Their users can "buy and sell Bitcoin" and pay "no fees".

The game Paypal currently plays with Crypto is the closest thing to printing money I have ever seen: Their users can "buy and sell Bitcoin" and pay "no fees". How does Paypal make money? "From the spread". The difference between bid and ask. And who sets the spread? Drumroll ... Paypal! Since you cannot transfer your bitcoins out, when you sell your bitcoins, Paypal pays you whatever they like. So far, Paypal only offers this in the United States. And do the Americans take this offer? Yes! They buy over a billion dollars worth of Bitcoin per month on Paypal. If this continues, it means that every American from toddler to senior buys $50 worth of Bitcoin per year. Other companies in the finance industry will want the same free lunch. Run on crypto in 3..2..1.. This will continue until the first companies will start to offer you to transfer your crypto out. Then slowly the market will normalize. Now everyone has crypto. In their paypal/mastercard/bank/whatever account and/or in their own wallet. Looks like chances for broader crypto adoption are pretty good.

abluecloud 6y ago
Same with their forex rates. What's new.
- deleted 6y ago
  [deleted]
sschueller 6y ago
That is outright scam in my view. They never have to hold bitcoin. They may as well sell paypal coin. Robinhood and Revolut do the same thing. If you can't transfer out your bitcoin, you don't have any bitcoin.
- liquidify 6y ago
  They couldn't do that. If they didn't actually have any crypto, in the event of a large scale increase in price combined with a large scale cash out, Paypal would have to eat the difference from buy to sell price. They would lose their shirt. At minimum, Paypal is buying some percentage of the crypto sales in actual crypto to act as a hedge. However, it is more likely they are closer to 1 to 1 backing since they probably believe that there will be large upward movements in the future and they believe they can make money on both the spreads and the actual bitcoin (assuming they ever care to sell it).
  - Mc_Big_G 6y ago
    You're giving Paypal and Robinhood too much credit. It wouldn't surprise anyone if they both consider themselves "too big to fail" and do not have sufficient crypto to cover themselves. It's easy to imagine the meetings where someone "important" says "That will never happen, end of discussion." and then it turns out they they're wrong and they get bailed out (or not).
    - sz4kerto 6y ago
      These meetings don't exist. Occasionally fraud and negligence happens, but not this casually. People running PayPal-sized companies are neither completely stupid not completely evil. A bit yes, but not this much.
    - akra 6y ago
      "Too big to fail" - and that's how you increase the supply of BTC without actually doing so I think. As long as an entity (such as the government) prints money and takes the hit on the spread people will see contracts of BTC as equivalent as BTC w.r.t value. Its basically banking, but since fiat is still the prime currency of legal settlement (not BTC) no one will think its possible to "run the bank" as that entity in the event of a run will pay the difference. BTC is not actually required to settle anything by most countries laws, so actually delivery of BTC isn't guaranteed. This does undermine actual BTC especially if actual BTC is harder to spend - the pseduo-BTC would then have more utility. In other words BTC could be the same as fiat potentially in the longer term. It will be more transparent of course since it it easier to take delivery of than say gold (or cash but less so), but as long as they don't give you that option in your product that's fine. Even cash is like this with withdrawal limits, and other laws. If fiat was only valued by the actual cash in the economy it would be worth a lot more than it is now btw.
  - hanniabu 6y ago
    > Paypal would have to eat the difference from buy to sell price. Why? If they never offer withdrawals then they don't need to worry about that.
- gruez 6y ago
  It's not any different than precious metal ETFs.
  - cturner 6y ago
    It is a similar dynamic, but I would be more inclined to trust the ETF. 1) For the metals ETFs I know about, the underlying is held by a bank which is a separate legal vehicle to the ETF. Since the ETF and the bank are both publicly-listed firms, their full-reserve commitments would be regularly audited to a high standard. 2) Brokers participate in risky activity that is unrelated to digital asset trading. This seems like a higher risk profile than a firm that is streamlined to maintain a single ETF. 3) The broker acts as custodian for your digital assets, but not for your shares. Imagine that you buy a digital asset through your broker and they become insolvent a week later. Assuming your contract gives you no special rights, you would sit on the books as one creditor alongside unpaid vendors and unpaid employees. Years later, you may get back cents in the dollar. Whereas you would have full and immediate rights to any ETF you had bought through that broker on the same day. They have no influence once it has settled.
    - oillio 6y ago
      For a view on what this looks like from a legal standpoint check out the MtGox collapse https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
- globular-toast 6y ago
  When you get paid at the end of the month do you think there is a bloke with a wheelbarrow full of gold, or salt, or even bits of paper running between banks ensuring you get your salary? You've just figured out the entire private banking sector ;)
  - pbourke 6y ago
    It’s one thing to do it with fiat currency, because ultimately there’s a central bank involved as the first lender. With “fractional reserve crypto” all hell seems like it can break loose - much like the pre-central banking era of monetary instability.
- dan-robertson 6y ago
  That would be illegal. And probably it would be the SEC (ie a regulator that actually does things) who would be making sure that PayPal or Robinhood or whoever aren’t lying.
- efwfwef 6y ago
  I remember seeing Revolut doing that, worse the price of buying Bitcoin was actually much higher than what you could get on other trading exchanges. What a fucking scam. At the time I didn't understand that people were buying Bitcoin only to gamble with it, and I couldn't wrap my head around buying Bitcoin on Revolut without the ability to move these to a different address.
nhumrich 6y ago
this isn't entirely true, PayPal does charge a transaction fee every time you sell or buy
- ArtTimeInvestor 6y ago
  Not when selling or buying crypto.
  - tinyhouse 6y ago
    Not true.
    - ArtTimeInvestor 6y ago
      Holla, it is indeed not true. According to the fees section here, they changed it a month ago and added fees on top of the spread: https://www.paypal.com/us/smarthelp/article/cryptocurrency-on-paypal-faq-faq4398 https://www.paypal.com/us/smarthelp/article/cryptocurrency-o...
GekkePrutser 6y ago
Lol.. You can't transfer them out?? What's the point of buying them then? Sounds more like a lease thing.
- eswat 6y ago
  Pretty much. Many want exposure to the price appreciation without having to deal with minutae like custody.
LegitShady 6y ago
crypto you can't move out of a particular broker is just company scrip
- xirbeosbwo1234 6y ago
  crypto is just company scrip
  - pbourke 6y ago
    It’s company scrip backed by tulip bulbs.
globular-toast 6y ago
That's how all currency trading works. Why do you think this is unique to Bitcoin or crypto? More than 95% of "money" in circulation was created in the private banking sector. That's the closest thing to printing money because that's actually what it is. Paypal is just taking a cut for providing a service. Don't like it? Don't use it.
- ArtTimeInvestor 6y ago
  You can show up at a bank and demand your balance in central bank money aka cash. The equivalent for Bitcoin would be that Paypal has to send your balance to you on the blockchain. But they do not do that. They will pay you in dollars. How much dollars? However much they like.
  - globular-toast 6y ago
    > You can show up at a bank and demand your balance in central bank money aka cash. Of course you can. Whether you get it or not is another matter. Have you ever tried it? Do you know anyone who has tried it? Sure, for trivial amounts you can do it. But do you think you can just waltz into your bank and walk out with $50,000 in cash? Good luck.
    - mianos 6y ago
      I did this often. Then I would buy a can of spam. :)
  - ascar 6y ago
    > You can show up at a bank and demand your balance in central bank money aka cash. If everyone would try to do that the system would collapse. The system is built upon the assumption that the vast majority of people don't do that.
    - globular-toast 6y ago
      When people do do that, it's called a bank run: https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run This happened to Northern Rock in the UK in 2007. The bank failed and was nationalised as a result.
kungito 6y ago
I think Binance has the same thing. They have the "Binance pegged BTC" and you have to pay an additional fee to get the "real BTC" which you could put in the "real BTC wallet" https://www.binance.com/en/blog/421499824684901264/Experience-BTCB--Bitcoin-on-Binance-Smart-Chain https://www.binance.com/en/blog/421499824684901264/Experienc...
3np 6y ago
Revolut is pulling the exact same bullshit to a T. If it weren't such an obvious move I'd say PayPal carbon-copied it from Revolut. Can't wait for the competition to put pressure on them.
koonsolo 6y ago
Quote from Elon Musk: "If PayPal had executed the plan that I wanted to execute on, I think it would probably be the most valuable company in the world".
- bondarchuk 6y ago
  ..what was the plan?
  - koonsolo 6y ago
    If I remember correctly, replace money, or at least all banks.
- whimsicalism 6y ago
  Paypal could have become like Alipay/Wechat Pay in China, but it didn't.
- xirbeosbwo1234 6y ago
  Which plan was that? The one Musk was fired for pushing, i.e. getting them to switch all their infrastructure to Microsoft Windows? Elon Musk is best ignored.
  - koonsolo 6y ago
    On which system you run has very little to do with how successful you can get your company.
parliament32 6y ago
Thing is this is exactly how it works with literally every other forex ever. If you go buy CAD with your USD from your local bank, of course they make money on the spread, the exact same way.
- kgwgk 6y ago
  But you get the foreign currency! You can take it to a foreign country to spend it in blackjack and hookers. That looks more like a bucket shop.
rantwasp 6y ago
Fed has entered the room
Triv888 6y ago
Webull does the same thing... 1% spread in both directions I think (2% total). At least Coinbase are honest and charge a fee and don't claim to be fee-free.
X6S1x6Okd1st 6y ago
MasterCard is only allowing stablecoins. Your insight sounds good, but unrelated to this.
jimmydorry 6y ago
Not quite to that extreme, but both banks and paypal do the same with fiat too. They make A LOT of money on the exchange from one currency to another at rates that they determine.

abluecloud 6y ago

Same with their forex rates. What's new.

deleted 6y ago
[deleted]

sschueller 6y ago

That is outright scam in my view. They never have to hold bitcoin. They may as well sell paypal coin. Robinhood and Revolut do the same thing. If you can't transfer out your bitcoin, you don't have any bitcoin.

liquidify 6y ago
They couldn't do that. If they didn't actually have any crypto, in the event of a large scale increase in price combined with a large scale cash out, Paypal would have to eat the difference from buy to sell price. They would lose their shirt. At minimum, Paypal is buying some percentage of the crypto sales in actual crypto to act as a hedge. However, it is more likely they are closer to 1 to 1 backing since they probably believe that there will be large upward movements in the future and they believe they can make money on both the spreads and the actual bitcoin (assuming they ever care to sell it).
- Mc_Big_G 6y ago
  You're giving Paypal and Robinhood too much credit. It wouldn't surprise anyone if they both consider themselves "too big to fail" and do not have sufficient crypto to cover themselves. It's easy to imagine the meetings where someone "important" says "That will never happen, end of discussion." and then it turns out they they're wrong and they get bailed out (or not).
  - sz4kerto 6y ago
    These meetings don't exist. Occasionally fraud and negligence happens, but not this casually. People running PayPal-sized companies are neither completely stupid not completely evil. A bit yes, but not this much.
  - akra 6y ago
    "Too big to fail" - and that's how you increase the supply of BTC without actually doing so I think. As long as an entity (such as the government) prints money and takes the hit on the spread people will see contracts of BTC as equivalent as BTC w.r.t value. Its basically banking, but since fiat is still the prime currency of legal settlement (not BTC) no one will think its possible to "run the bank" as that entity in the event of a run will pay the difference. BTC is not actually required to settle anything by most countries laws, so actually delivery of BTC isn't guaranteed. This does undermine actual BTC especially if actual BTC is harder to spend - the pseduo-BTC would then have more utility. In other words BTC could be the same as fiat potentially in the longer term. It will be more transparent of course since it it easier to take delivery of than say gold (or cash but less so), but as long as they don't give you that option in your product that's fine. Even cash is like this with withdrawal limits, and other laws. If fiat was only valued by the actual cash in the economy it would be worth a lot more than it is now btw.
- hanniabu 6y ago
  > Paypal would have to eat the difference from buy to sell price. Why? If they never offer withdrawals then they don't need to worry about that.
gruez 6y ago
It's not any different than precious metal ETFs.
- cturner 6y ago
  It is a similar dynamic, but I would be more inclined to trust the ETF. 1) For the metals ETFs I know about, the underlying is held by a bank which is a separate legal vehicle to the ETF. Since the ETF and the bank are both publicly-listed firms, their full-reserve commitments would be regularly audited to a high standard. 2) Brokers participate in risky activity that is unrelated to digital asset trading. This seems like a higher risk profile than a firm that is streamlined to maintain a single ETF. 3) The broker acts as custodian for your digital assets, but not for your shares. Imagine that you buy a digital asset through your broker and they become insolvent a week later. Assuming your contract gives you no special rights, you would sit on the books as one creditor alongside unpaid vendors and unpaid employees. Years later, you may get back cents in the dollar. Whereas you would have full and immediate rights to any ETF you had bought through that broker on the same day. They have no influence once it has settled.
  - oillio 6y ago
    For a view on what this looks like from a legal standpoint check out the MtGox collapse https://en.wikipedia.org/wiki/Mt._Gox https://en.wikipedia.org/wiki/Mt._Gox
globular-toast 6y ago
When you get paid at the end of the month do you think there is a bloke with a wheelbarrow full of gold, or salt, or even bits of paper running between banks ensuring you get your salary? You've just figured out the entire private banking sector ;)
- pbourke 6y ago
  It’s one thing to do it with fiat currency, because ultimately there’s a central bank involved as the first lender. With “fractional reserve crypto” all hell seems like it can break loose - much like the pre-central banking era of monetary instability.
dan-robertson 6y ago
That would be illegal. And probably it would be the SEC (ie a regulator that actually does things) who would be making sure that PayPal or Robinhood or whoever aren’t lying.
efwfwef 6y ago
I remember seeing Revolut doing that, worse the price of buying Bitcoin was actually much higher than what you could get on other trading exchanges. What a fucking scam. At the time I didn't understand that people were buying Bitcoin only to gamble with it, and I couldn't wrap my head around buying Bitcoin on Revolut without the ability to move these to a different address.

nhumrich 6y ago

this isn't entirely true, PayPal does charge a transaction fee every time you sell or buy

ArtTimeInvestor 6y ago
Not when selling or buying crypto.
- tinyhouse 6y ago
  Not true.
  - ArtTimeInvestor 6y ago
    Holla, it is indeed not true. According to the fees section here, they changed it a month ago and added fees on top of the spread: https://www.paypal.com/us/smarthelp/article/cryptocurrency-on-paypal-faq-faq4398 https://www.paypal.com/us/smarthelp/article/cryptocurrency-o...

GekkePrutser 6y ago

Lol.. You can't transfer them out?? What's the point of buying them then? Sounds more like a lease thing.

eswat 6y ago
Pretty much. Many want exposure to the price appreciation without having to deal with minutae like custody.

LegitShady 6y ago

crypto you can't move out of a particular broker is just company scrip

xirbeosbwo1234 6y ago
crypto is just company scrip
- pbourke 6y ago
  It’s company scrip backed by tulip bulbs.

globular-toast 6y ago

That's how all currency trading works. Why do you think this is unique to Bitcoin or crypto? More than 95% of "money" in circulation was created in the private banking sector. That's the closest thing to printing money because that's actually what it is. Paypal is just taking a cut for providing a service. Don't like it? Don't use it.

ArtTimeInvestor 6y ago
You can show up at a bank and demand your balance in central bank money aka cash. The equivalent for Bitcoin would be that Paypal has to send your balance to you on the blockchain. But they do not do that. They will pay you in dollars. How much dollars? However much they like.
- globular-toast 6y ago
  > You can show up at a bank and demand your balance in central bank money aka cash. Of course you can. Whether you get it or not is another matter. Have you ever tried it? Do you know anyone who has tried it? Sure, for trivial amounts you can do it. But do you think you can just waltz into your bank and walk out with $50,000 in cash? Good luck.
  - mianos 6y ago
    I did this often. Then I would buy a can of spam. :)
- ascar 6y ago
  > You can show up at a bank and demand your balance in central bank money aka cash. If everyone would try to do that the system would collapse. The system is built upon the assumption that the vast majority of people don't do that.
  - globular-toast 6y ago
    When people do do that, it's called a bank run: https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run This happened to Northern Rock in the UK in 2007. The bank failed and was nationalised as a result.

kungito 6y ago

I think Binance has the same thing. They have the "Binance pegged BTC" and you have to pay an additional fee to get the "real BTC" which you could put in the "real BTC wallet" https://www.binance.com/en/blog/421499824684901264/Experience-BTCB--Bitcoin-on-Binance-Smart-Chain https://www.binance.com/en/blog/421499824684901264/Experienc...

3np 6y ago

Revolut is pulling the exact same bullshit to a T. If it weren't such an obvious move I'd say PayPal carbon-copied it from Revolut. Can't wait for the competition to put pressure on them.

koonsolo 6y ago

Quote from Elon Musk: "If PayPal had executed the plan that I wanted to execute on, I think it would probably be the most valuable company in the world".

bondarchuk 6y ago
..what was the plan?
- koonsolo 6y ago
  If I remember correctly, replace money, or at least all banks.
whimsicalism 6y ago
Paypal could have become like Alipay/Wechat Pay in China, but it didn't.
xirbeosbwo1234 6y ago
Which plan was that? The one Musk was fired for pushing, i.e. getting them to switch all their infrastructure to Microsoft Windows? Elon Musk is best ignored.
- koonsolo 6y ago
  On which system you run has very little to do with how successful you can get your company.

parliament32 6y ago

Thing is this is exactly how it works with literally every other forex ever. If you go buy CAD with your USD from your local bank, of course they make money on the spread, the exact same way.

kgwgk 6y ago
But you get the foreign currency! You can take it to a foreign country to spend it in blackjack and hookers. That looks more like a bucket shop.

rantwasp 6y ago

Fed has entered the room

Triv888 6y ago

Webull does the same thing... 1% spread in both directions I think (2% total). At least Coinbase are honest and charge a fee and don't claim to be fee-free.

X6S1x6Okd1st 6y ago

MasterCard is only allowing stablecoins. Your insight sounds good, but unrelated to this.

jimmydorry 6y ago

Not quite to that extreme, but both banks and paypal do the same with fiat too. They make A LOT of money on the exchange from one currency to another at rates that they determine.