Sq. and PayPal will be the new whales to the crypto market as clients congregate to purchase bitcoin
The PayPal application can be viewed on a mobile phone.
Felix Kästle | Image Alliance | Getty Images
Fintech companies are fueling the demand for Bitcoin by opening the floodgates for millions of people to trade in.
According to one company’s analysis, PayPal and Square customers have launched most of the new Bitcoin offering every day. Hedge fund Pantera Capital estimates that Square customers account for 40% of the Bitcoin that has hit the market in the two years since the product was launched.
PayPal may be responsible for even more demand since it launched a few weeks ago. The payment company has teamed up with the crypto company Paxos for custody and trading. The volume on the Paxos exchange, itBit, has been consistently in the same range since last September. When PayPal recently went online, the volume on the exchange more than tripled, according to CoinGecko.
Pantera estimates that PayPal customers are already buying around 70% of the new Bitcoin offering within three weeks of the launch.
"The price is increasing significantly," said Dan Morehead, founder and chief investment officer of Pantera Capital and former CFO of Tiger Management, to CNBC in a telephone interview. "You bring two companies with you that are already buying all newly issued bitcoins – supply and demand say the price must go up."
PayPal's implied bitcoin volume
Source: Pantera Capital
According to the crypto data company Messari, between 800 and 900 bitcoins are launched daily, valued at around $ 15 million at Monday's price. Ultimately, only 21 million bitcoin can be mined, which proponents say has the same scarcity value as assets like gold. The limited supply is one reason some investors view it as an inflation hedge and an alternative to the ailing US dollar.
While fintech companies may avail of some of this solid offer, Brian Kelly, founder and CEO of BKCM, said the bigger fintech effect is related to new demand. Square and PayPal make it easy for first-time retailers to purchase through a mainstream app.
"It's now easier to buy and do business, and it's opening up new demand by removing a barrier to entry," said Kelly.
Analysts also point to the confidence that high-profile money managers have brought into the asset class in recent months. Hedge fund manager Paul Tudor Jones called it "the best inflation hedge," while Stanley Druckermiller and Bill Miller also told CNBC they were long bitcoin.
The cryptocurrency first rose to the $ 20,000 mark around Christmas three years ago. It crashed soon after and had only recovered to the $ 18,000 level in the past few weeks. The cryptocurrency is up 260% since its March low and is up 40% in the last month alone. It exceeded $ 19,000 on Tuesday morning.
Still, some are skeptical that Bitcoin is a viable "replacement" for gold. Peter Boockvar, Chief Investment Officer of Bleakley Advisory, called the idea that a cryptocurrency was about to replace one of the oldest safe-haven assets in the world "absolute nonsense".
"Something with a history of more than 10 years can replace nothing with a 5,000-year success story," Boockvar said in a statement to customers on Monday. "It can certainly complement it but not replace it, and I believe it will be that complement that has traction."