In the domain of cryptocurrencies, there is a strong current that for years, wanted to see only a single thing: big traditional institution. Their rallying cry that the institutions are coming is so prevalent that many analysts now firmly believe this is the next big step for the crypto domain. Even if it takes decades, in this mindset, there is no further expansion in bitcoin adoption and cryptocurrency markets in general if the institutional players do not provide their blessing.
A recent analysis piece on this issue was penned by Ryan Watkins of Messari. The text has been hailed by many as a great insight into the initialization of the digital currency and the adoption of this entire space in the existing mechanism and structures. The analysis, especially examines this in terms of the biggest cryptocurrency network, bitcoin.
In particular, the report touches upon the recent news that Venmo and PayPal are planning to add support for trading and keeping of bitcoin and other digital currencies. Besides the impact of this eventuality, the report also examines the broader scope of the institutional arrival and the potential of that event – in different scopes – to the further movement of the crypto markets.
Watkins applied a relatively simple math formula to explore the potential market capitalization and the price of individual coins. He first examined the so-called AUM or assets under management and then moved a small percent of those assets to the digital domain. This is a form of aggregate demand which would be able to increase the market cap of bitcoin if it appeared in the real world.
Following this logic, the demand of just one percent institutional allocation of resources into bitcoin would transform the market drastically. This movement would push the bitcoin market cap well above one trillion USD. This would mean the price of a BTC token that would be over 50,000 USD. This puts the entire issue of market cap as a reflection of institutional investment potential into a very different environment.
A few days ago, the news that Paypal and its partner company Venmo will begin providing support for bitcoin transactions, as well as an in-platform wallet, detonated with a nuclear potential in the crypto community. This immediately came with the comparisons to Cash App, which presently, even though much smaller than PayPal, provides similar service and gathers substantial funds from it. More precisely, ever since Cash App began offering this service, its revenue from bitcoin business grew regularly with every passing quarter.
Thus, it seems clear that fintech companies can make big business with crypto. At the same time, PayPal is a big entity. With over 300 million users, the bullish predictions about this move were quick to follow. However, when the cracking on numbers using Watkins formula begins, the actual setup seems a lot more muted in terms of its potential. Present PayPal balance, showcasing all customers and their active accounts, is around 23 billion USD.
If the numbers stay similar and the users have a process of allocating 1 to 5 percent of their holdings into bitcoin, the network would gain between 230 million and 1.15 billion USD in its market cap. If that was to occur, even though it is highly unlikely in the actual world, the boost to the BTC price would be at a maximum of about 9,300 USD.
Entangled Price Influences
Seeing a rise of nearly 10,000 USD seems like a great possibility, even if it is completely theoretical. Yet, that would still make the price of a BTC token below its previous maximum, if the bullish trend began showcasing itself today. But, not all PayPal account owners are esports players, tech enthusiasts, and similar otherwise crypto-interested groups. So, even a realistically huge interest in crypto inside of both platforms would mean a measly jump in bitcoin market cap and a small movement in the BTC price.
Even then, it would come as nothing more than one more influence in an already insanely entangled and only partially understandable mesh. The same influences collide, overlap, and override each other on a daily basis anyway. Adding PayPal and Venmo to this mix would not critically change it one way or another. More to the point, the price change that could come about because of this would be short-lived, because it is nothing on the scale of triggering a protracted bull run. This is seen in its media potential – which would turn out to be a one-day affair – but also any other market relevant to the crypto markets.
While the analysis Watkins created offers an interesting hypothetical insight, the truth remains that the crypto markets are entities moved by feeling just as much as rationality. Right now, the feeling is that the general global financial space is in trouble. Not just because of the COVID-19 coronavirus pandemic, but because of the pressure cracks and faultlines it revealed. These are not going anywhere and once the cracks are visible, they cannot be easily unseen or forgotten.
The inclusion of crypto in PayPal and Venmo is not, as many traditional analysts see it, a positive signal to the institutional investors. Instead, it is a positive signal to the actual everyday users. No matter how much bitcoin does not remind traditional investors of fiat money, it is still valuable to anyone who has it. Once they do have it, they are free to figure out, like often in digital ventures, how to use and apply it. Institutional investors might come sooner, or later, or potentially never, but none of it actually hurts bitcoin.
Their appearance does help immensely, of course, but the structure is designed with it being independent of such a scenario becoming a necessity. Unlike a startup that does not have a working product, bitcoin is not desperate for its big investor. Instead, it is a working product and offers a working solution. The fact that PayPal wants to integrate that product into its system just underlines its value and stability for everyone to see.