Square and PayPal emerge like whales in the crypto market

Fintech companies are helping fuel demand for bitcoin by opening the floodgates for millions of people to trade them.

According to one company’s analysis, PayPal and Square customers bought the majority of the new bitcoin supply entering the market each day. Hedge Fund Pantera Capital estimates that Square customers have accounted for 40% of bitcoin entering the market in the two years since the product’s launch.

PayPal could be responsible for an even greater demand since its launch just a few weeks ago. The payment firm has partnered with crypto firm Paxos for custody and trading. Paxos’ trade volume, itBit, was still in the same range since September. But with PayPal’s recent go live, trading volumes have more than tripled, according to data from CoinGecko.

Pantera estimated that within three weeks, PayPal customers were already buying around 70% of the new bitcoin supply.

“The price is going up dramatically,” said Dan Morehead, founder and chief investment officer of Pantera Capital and former chief financial officer of Tiger Management. “You are bringing in two companies that are already buying all of the newly issued bitcoin – supply and demand require the price to rise.”

^{Source: Pantera Capital}
Between 800 and 900 bitcoins – worth around $ 15 million at Monday’s price – are added to the market daily, according to crypto-data firm Messari. Only 21 million bitcoins can possibly be mined, which advocates say gives it the same rarity value as assets like gold. Its limited supply is one reason some investors are approaching it as an inflation hedge and an alternative to the weaker US dollar.

While fintechs may absorb some of this fixed supply, Brian Kelly, founder and CEO of BKCM, said the wider effect of fintech is on new demand. Square and PayPal make it easier for new merchants to shop through a consumer app.

“It’s now easier to buy and deal with, and it opens up new demand by removing a barrier to entry,” Kelly said.

Analysts also point to the confidence that top-level fund managers have brought to the asset class in recent months. Hedge fund manager Paul Tudor Jones called it “the best hedge against inflation,” while Stanley Druckenmiller and Bill Miller told CNBC they were long Bitcoin.

The cryptocurrency first climbed nearly $ 20,000 around Christmas three years ago. It crashed soon after and had not regained the $ 18,000 level until the last few weeks. The cryptocurrency has risen 260% from its March low and in the last month alone it has climbed 40%. As of Tuesday morning, it exceeded $ 19,000.

Still, some doubt that bitcoin is a viable “replacement” for gold. Peter Boockvar, chief investment officer of Bleakley Advisory, called the idea that a cryptocurrency was replacing one of the world’s oldest safe-haven assets “absurd.”

“Something with a history of more than 10 years does not replace something with a history of 5,000 years,” Boockvar said in a note to customers on Monday. “It can certainly complement it, but not replace it and I think it will be this complement that will be of interest.”