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PayPal, Square Are Shaping the Cryptocurrency Market

Companies like PayPal and Square are leading the way for investor adoption of cryptocurrency.

Various fintech names like PayPal  (PYPL) - Get PayPal Holdings Inc. Report and Square  (SQ) - Get Block Inc. Class A Report have been aggressive in the cryptocurrency space. The two fintech giants offer users the ability to buy and sell cryptocurrency, and potentially even transact them at stores.

Square invested $220 million, or 5%, of its cash into cryptocurrency in 2020 and it's worth more than twice that amount now. And, last month, PayPal’s Venmo unit opened its service to buying, selling, and holding cryptocurrency directly within the Venmo app with as little as $1.

Although the fintech giants are shaping the market, New Constructs CEO David Trainer thinks the companies are also being shaped by the market.

"The demand of the younger cohorts for access to these kinds of investments is causing traditional, older wealth management clients to capitulate and fight for customers in the new, younger demographic. And they're fighting against fintech startups like PayPal and Square, which are able to move more quickly in these new assets and categories," Trainer said. 

Vaneck's managing director and head of ETF product Ed Lopez agreed that millennial demographic demand is huge. "You have a demographic of people who are used to operating digitally and are demanding it, so we are seeing fintech companies on the forefront of this digital transformation adopt cryptocurrencies and make it accessible," he said.

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Research analyst with Action Alerts PLUS Zev Fima said that according to what he's heard on earnings calls, banks realize that they dropped the ball on fintech. 

"Square, Venmo, and other fintech companies came up and banks, all of a sudden, realized that they have to invest tens of billions of dollars into fintech and forget the physical branches. So, there certainly is some pressure, I could imagine, coming from not wanting to drop the ball on cryptocurrency after dropping the ball on fintech. It'll be interesting to see what they do," Fima said.

On fintech shaping the cryptocurrency market, Fima added that it wasn't until Paypal said it was going to start accepting bitcoin through Venmo that he realized fintech is a key to widespread adoption of digital currency.

"PayPal acknowledged that they have to start offering an ability for their customers to buy, sell and hold bitcoin. But at the same time, offering that ability pulls more people into the ecosystem because you have millions of people with Venmo who don't know anything about bitcoin and suddenly get the ability to buy it after hearing about it on TV. So, I believe it's a network effect and I think it goes both ways," said Fima. 

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