Bitcoin has been on a tear recently.
On Tuesday, the cryptocurrency rose as high as $19,392, putting it within striking distance of its all-time high of $19,665 set back in December 2017.
Bitcoin is up more than 166% year-to-date, and has been pushed higher by bullish sentiment tied in part to more institutional interest in the coin.
Hedge Fund Pantera Capital estimates that the two firms’ clients have been buying the majority of the new bitcoin supply entering the market, with Square users accounting for 40% of bitcoin entering the market.
And PayPal could be responsible for even more demand since launching its service where users can buy, hold, and sell cryptocurrencies late last month.
Pantera estimates that since its launch, PayPal users are already buying roughly 70% of the new supply of bitcoin.
“It’s having a significant increase on price,” said Dan Morehead, founder and chief investment officer of Pantera Capital. “You bring on two corporates that are already buying all of the newly issued bitcoins – supply and demand says the price has to go up.”
Both stocks have been pushed far higher this year, with PayPal up more than 90% year-to-date and Square up a whopping 224% so far this year.
Square is up nearly 19% over the last month alone, driven higher by a massive earnings beat, thanks in part to a surge in bitcoin transactions via its Cash app last quarter.
“Square managed to beat by a mile,” said MoffettNathanson analyst Lisa Ellis, who added that gross quarterly profits from the Cash app were three times higher than a year earlier. Square buys bitcoin and resells it to Cash app customers, while taking a cut like a broker. The company said its bitcoin revenue was around $1.63 billion, while its costs from bitcoin were $1.6 billion with the difference being gross profit.
The payments company’s bitcoin revenue and profit depend on the fluctuating price of the cryptocurrency, along with trading volume. So Square benefits when bitcoin prices rise and volume increases.
As for PayPal, it now allows users to buy and sell bitcoin, and said that starting in 2021, users will be able to use bitcoin to buy from the 26 million stores that are signed up with the company.
Galaxy Digital Holdings said PayPal’s bitcoin move was “the biggest news of the year in crypto” in a tweet. “All banks will now be on a race to service crypto. We have crossed the rubicon.”
The move might be even more beneficial for PayPal, however. The company said it won’t charge fees or otherwise make money off bitcoin buying and selling this year, but will start charging “a transaction fee depending on the amount of crypto you buy/sell” in 2021.
This means PayPal won’t hold bitcoin on its own balance sheet.
But for PayPal, adding bitcoin will keep its users engaged, argues Wolfe Research analyst Darrin Peller, who said bitcoin adoption “can drive a lot more engagement and user interactions for the likes of PayPal.”