PayPal’s ravenous appetite for bitcoin outstrips supply

According to Dan Morehead, CEO of Pantera Capital, large investors such as PayPal and Square are buying up more than 100 percent of newly generated bitcoin holdings. However, this statement is somewhat misleading.

Dan Morehead, CEO of Pantera Capital, opined to CNBC that large investors, such as PayPal and Square, are investing massively in Bitcoin. According to the report, the two financial services firms alone bought up more than 100 percent of newly-generated bitcoin combined. Specifically, Morhead said in the interview published on Twitter:

We currently have buyers, like PayPal, who alone are buying more than 100 percent of newly issued bitcoin.

Morehead’s PayPal statement is misleading

This statement is actually somewhat misleading, as it implies PayPal and co. are buying the newly issued stock short. That’s only partially true. According to the four-year cyclical Bitcoin Union halving that took place in May, 6.25 Bitcoin are currently being mined worldwide every ten minutes. That makes circa 900 bitcoin a day. PayPal is acquiring 70 percent of the newly created bitcoin alone, according to an investor letter Pantera Capitals. Together with the investments of Cashapp, Square Inc.’s mobile payment service, the percentage of investments in freshly mined Bitcoin extends to more than 100 percent. It must be taken into account that miners also „hodln“ (hold) a part of their generated Bitcoin and do not resell it directly. In plain language, this means that large investors are buying more Bitcoin than is currently coming onto the market.

PayPal’s investment seems logical in that the payment service has about 300 million active users. Admittedly, there will already be numerous Hodlers with their own wallet among them; estimates assume around 100 million BTC owners. Still, PayPal will need to build up a large BTC reserve to meet demand – at least until bitcoin integration expands beyond the U.S., which is planned for 2021. After PayPal announced in October that it would be able to buy and sell cryptocurrencies through the payment service in collaboration with Paxos, the U.S. giant is stocking up on Bitcoin en masse.

PayPal CEO anticipates bitcoin mass adoption

In the first interview after PayPal’s bitcoin implementation, CEO Dan Shulman predicted mass adoption of bitcoin. He said he is certain that cryptocurrencies will become an everyday means of payment. In this regard, the global pandemic has greatly accelerated the trend, in his opinion. Shulman sees the future in a financial system that is faster, cheaper and more efficient than the traditional one. Financial inclusion, he feels, is desirable to allow people around the world to access the financial world.

Concerns that many people have about cryptocurrencies due to volatile prices are something the CEO can understand, he said. Especially for smaller traders on Paypal, the profit margins are sometimes small and can even be completely wiped out by fluctuating exchange rates. However, the exchange rate is always transparent and known to both sides at the moment of purchase. The risk of volatility is therefore not as high as initially thought.

Bitcoin miners tend to hold their Bitcoin in 2020

Often, a higher bitcoin price also gives miners a reason to sell their holdings. That’s what happened in 2017 and 2019 when the price shot up to interim highs of $20,000 and $14,000, respectively. Despite the current all-time high, the current trend among digital gold miners is to hold rather than sell. In fact, these are optimistic signs for bitcoin.

When more miners decide to hold bitcoin instead of selling it, a supply deficit is created. This should automatically improve the cryptocurrency’s bullish bias against booming demand from institutional investors, such as PayPal and Co.