I haven’t written much about Bitcoin as of late. While the positive fundamental news has continued to pour in with regard to adoption and venture capital investment, watching the price action has felt like watching paint peel off a wall.
When friends have asked me about the price action as of late, I only note the bizarre discrepancy between the fundamentals and price. One reason for this seems to be muted buying interest, coupled with miners who have already invested heavily in mining equipment, selling their reward blocks immediately in order to recoup some of their capital investment and offset energy costs. In addition, while banks have stated they are holding off with regard to Bitcoin until there is more regulatory certainty, it appears clear to me that the big banks are doing everything they can to stall Bitcoin adoption. This was confirmed last week when banks cracked down on the exponentially growing Bitcoin ecosystem in the Isle of Man.
Although PayPal has been publicly flirting with Bitcoin for some time, today’s announcement marks the company’s “first formal offering to the Bitcoin community,”according to Coindesk. When I initially heard the announcement, I knew it seemed significant, but I also noticed the price was somewhat slow to react. This seems to be due to exhaustion within the community with the aforementioned discrepancy between fundamentals and price. Nevertheless, I pulled up the chart and noticed that the BTC price had a good opportunity for a bullish daily reversal today. So I tweeted:
Since then, the price has jumped another 7% and the technical picture has started to look a lot more interesting. Here’s the full announcement from Scott Ellison, Senior Director Corporate Strategy, PayPal:
Bitcoin has been big news this year, and for good reason. Although crypto-currencies have been around for some time, only Bitcoin has achieved significant scale. This new entrant in the world of payments has people asking lots of questions – including how and if PayPal will decide to work with Bitcoin.
While we’re focused on giving people everywhere safer and more seamless buying experiences, we’re also fierce advocates of giving businesses — and in turn their customers — flexibility and the freedom of choice. Earlier this month we announced that businesses working with Braintree will soon be able to accept Bitcoin as a payment option through their innovative v.zero SDK and relationship with Coinbase.
Today we are announcing PayPal’s next step in helping merchants accept Bitcoin payments. PayPal has entered into agreements with leading Bitcoin payment processors BitPay, Coinbase and GoCoin. Starting today, these agreements let PayPal digital goods merchants accept Bitcoin with a simple integration through the PayPal Payments Hub. This will be available to merchants in North America first.
We chose to work with BitPay, Coinbase and GoCoin because of our commitment to offering innovative and safer ways for businesses to accept payments. All three companies have taken steps to ensure that they know their customers and that those customers are offered certain protections. We believe digital goods merchants will be excited to work with these industry-leading companies to sell ringtones, games and music and get paid with Bitcoin.
To be clear, today’s news does not mean that PayPal has added Bitcoin as a currency in our digital wallet or that Bitcoin payments will be processed on our secure payments platform. PayPal has always embraced innovation, but always in ways that make payments safer and more reliable for our customers. Our approach to Bitcoin is no different. That’s why we’re proceeding gradually, supporting Bitcoin in some ways today and holding off on other ways until we see how things develop.
But giving our digital goods merchants an easy, one-stop way to test the waters with this new form of payment isn’t the only way we work with Bitcoin. For some time now, we’ve helped merchants selling Bitcoin mining equipment to accept PayPal payments. This will continue. But to safeguard customers, we’ve decided not to work with merchants who pre-sell these products. This is consistent with our approach to pre-sales of other goods; we hold off anytime we determine that pre-selling may not provide a good buyer experience.
Pre-selling is when a business asks for money up-front for a product or service it will deliver in the future. Customers may not get their money back if the business goes out of business before the product is shipped but after a buyer protection period expires. Again, our decision not to support pre-sales is shaped by our desire to protect our customers.
PayPal also needs to follow the laws and regulations in every market we operate. For this reason, virtual currency exchangers and administrators interested in working with PayPal in the future must secure the appropriate licenses and put anti-money laundering procedures in place.
PayPal is excited about all the innovations taking place in payments these days. More choices in how people create value, share it, buy, sell and trade it – that’s exactly what PayPal is all about. And we believe Bitcoin offers unique opportunities as more people and businesses experiment with it. We are excited to work with businesses and business models that allow us to offer new experiences and the trusted service our customers expect. We hope to do more with Bitcoin as its ecosystem continues to evolve.What’s clear to me is that the courtship period is over. PayPal and Bitcoin are now officially seeing each other. Whether or not this evolves into a full fledged partnership remains to be seen, but my guess is that it will.
I also find it interesting and encouraging that the positive news from PayPal comes on the same day that the despised mining manufacturing equipment company Butterfly Labs had a civil lawsuit filed against it by the Federal Trade Commission (FTC). Arstechnicareports that:
Federal authorities believe that the three named members of the company’s board of directors—Jody Drake (aka Darla Drake), Nasser Ghoseiri, and Sonny Vleisides—spent millions of dollars of corporate revenue on all kinds of things, including saunas and guns, while ignoring many customer orders that went unfulfilled or were significantly delayed.
“The FTC alleges that one corporate defendant and three individual defendants have taken in over $50 million by operating a scheme that required consumers to pre-pay for machines that would allow consumers to ‘mine’ for Bitcoins, a new virtual currency,” the complaint states. “Defendants either never delivered these machines or delivered them so late that they became obsolete.”I think it is a very good sign that the PayPal news comes on the same day that one of the worst actors in Bitcoin bites the dust. Also in the positive news camp, we may be finally seeing some demand side activity with the entry into the market of hedge fund GABI. I coveredGABI’s interesting story previously, but it seems the firm has now started buying.
I haven’t purchased any BTC recently due to my confusion about the discrepancy between price and fundamentals, but today I decided to add to my position. Only time will tell if this is a wise choice.
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