PayPal and Coinbase

PayPal is going to buy Coinbase. It’s a guess but it would make sense.

First, eBay has recently dumped PayPal as their payment provider. I assume this is a big blow to PayPal as a large part of their business model is floating payments to merchants on eBay. Will people still put up with their bullshit when they aren’t the only game in town for the largest auction site? I’m guessing not.

Consider PayPal’s acquisition Braintree Payments.

Braintree was once a disruptive force in payment gateways. Their gateway emphasized ease of integration. Their documentation has a developer-friendly, SDK-first approach.

However, since their acquisition by PayPal, Braintree has frozen in time. There has been little innovation in their core product, with the exception of a new graphQL endpoint.

Worse, they have failed to implement international payments. Though they accept “local currencies,” these are still converted to US Dollars in the backend. They do not accept payment methods other than PayPal and credit cards. They lean heavily on PayPal integration to make the feature work.

Compare with their contemporaries Stripe. Stripe has a best-in-class API. Starting from a well-designed object model they’ve had no problem incorporating new payment methods and international currencies.

So why Coinbase? Easy: Coinbase is the PayPal of crypto. I have no objective basis for this claim. However, I observe both Coinbase and PayPal to be assholes who hold your money in a non FDIC-insured limbo at their leisure. Both companies face pressure from regulatory agencies and file 1099’s.

PayPal started playing with crypto in a very PayPal way. Arbitrary holds, transfer restrictions, hidden FAQs, closing your account, keeping your money for your own safety. Customers will not take them seriously until they let customers send and receive the currency they pay for.

A couple years ago, Coinbase was valued at upwards of 8 billion. Now they boast claims of 50 billion in crypto reserves.

Still, it should still be a drop in the bucket for PayPal (who at the time of writing has a market cap of $295 billion). Coinbase’s $50 billion in bitcoin is not fully liquid. Those are reserves that can’t be lent out for interest. Being the largest holder of the currency, converting large amounts of bitcoin to cash would lower its value just as fast as they could sell it. We will soon know more of Coinbase’s worth as their IPO progresses.

PayPal will want a win to recover from losing eBay while they’ve still got come clout. They are diversified enough to be able to sit on that coin money and not need to convince people to “invest” in it at all times.

Coinbase’s stablecoin is shit. Paypal Cash Plus accounts are the equivalent of a non-collateralized stablecoin that is guaranteed to be worth less than the fiat it represents (minus fees). Imagine if they could back that imaginary cash up with made-up coins that they control the largest supply of?

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