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PayPal’s Entry Into The Crypto Space Pushes Bitcoin Above 13K

John Wanguba by John Wanguba
October 22, 2021
in Crypto news
Reading Time: 12min read
Bitcoin surges after PayPal enters the crypto space officially

On October 21, news emerged that PayPal will soon be offering crypto trading services to its users at no extra fees. Users can pay for their goods and services via the platform using Litecoin (LTC), Bitcoin (BTC), Ethereum (ETH), and Bitcoin Cash (BCH).

With that in mind, the Bitcoin market rallied to reach above $13,215. The flagship crypto reached above $13K for the first time since July and just for the third time since the all-time high bull run seen in late-2017. The latest move follows a long sustained period of 5-figure price action with bitcoin having spent almost the whole of the last 12 weeks trading above $10,000.

Mati Greenspan, the Quantum Economics founder, said that this rally was nearly wholly driven by PayPal.

“There’s no doubt in my mind that this bit of news is almost solely responsible for today’s extended gains.”

Bitcoin was up 10% within 24 hours but it has since retreated to consolidate just above $12,700. ETH was up 8%,  BCH was up 9%, and LTC was up more than 15% on October 21. All of these cryptos have since retreated slightly to consolidate their gains before the next price action.

Although ETH managed to rally with BTC, it failed to maintain its strength relative to bitcoin since it dropped from the low-mid $400s amid the decentralized finance (DeFi) boom in August. Ether today faces a strong resistance that has formed at $400.

Alex Mashinsky, CEO of crypto lending platform Celsius, while responding to the news from PayPal, stated:

“This is definitely a bullish sign for Bitcoin and other cryptocurrencies. Crypto is all about trust, and PayPal has a very high level of trust with its users […] If the UI/UX of the service is done right, we will see millions of new users join each month.”

What Traders Expect

Bitcoin price secured a new 2021 high and the traders are hopeful that it will rise even higher for 3 major reasons. The price exploded to $13,217 after traders dismantled resistance levels at $11,900, $12,000, and $12,500 within 48-hours. While several technical reasons explain the abrupt surge, three primary factors are underpinning this rally.

These three factors include PayPal enabling crypto purchases, a favorable technical structure, and Bitcoin’s rising dominance rate.

PayPal’s Announcement Builds Bitcoin Momentum

On October 21, PayPal officially announced that it will enable its users to buy and sell major cryptocurrencies including BTC. All through the past 12 months, there were many speculations on PayPal’s potential crypto integration. These speculations intensified after multiple reports alleged that the firm was working on it.

Dan Schulman, the president and CEO of PayPal, confirmed the crypto integration in an official statement. He wrote:

“We are eager to work with central banks and regulators around the world to offer our support, and to meaningfully contribute to shaping the role that digital currencies will play in the future of global finance and commerce.”

After that official statement from PayPal was published, the bitcoin price immediately exploded from about 12,300 to as high as $12,900.

The CEO of CF Benchmarks which is a subsidiary of Kraken exchange, Sui Chung, told reporters that bullish sentiment might be returning to the cryptocurrency space. He explained:

“Bitcoin passing $13,000 today, a 16-month high, demonstrates that this trend is only picking up pace. That PayPal, a household name, has received a conditional BitLicense is likely propelling bullish sentiment. Today is significant as a signpost for further price appreciation in the future… the point by which mainstream media and ‘mom and pop’ retail investors may soon start to show interest in the asset, as they did in late 2017.”

Bitcoin Dominance Is Increasing

In the past seven days, Bitcoin has managed to outperform altcoins, DeFi tokens, and Ethereum.

In that context, Josh Olszewicz, a crypto technical analyst, stated that BTC dominance has risen above a key moving average. Technically speaking, this development indicates that Bitcoin might continue to outperform the alternative cryptocurrencies in the short term. Olszewicz said:

“BTC dominance back above the 200-day moving average for the first time since May, king corn is back.”

Bitcoin Is Showing A Bullish High Time Frame Structure

All through October, traders have managed to pinpoint the favorable technical structure of Bitcoin on the bigger time frames. Based on Bitcoin’s weekly chart, there is a breakout that has surpassed the most recent local top that was recorded in August.

About two months ago, the flagship cryptocurrency topped out at $12,468 on Binance and later went on to plunge below $10,000. As highlighted earlier, October 21’s high volume surge pushed the BTC price to a new 2021 high at $13,217 which is clearly above the previous local top.

In the near-term, traders expect that the market will cool down after a strong rally. A pseudonymous crypto futures trader, Flood, said:

“I think we are quite overextended on $BTC for now. I’d imagine seeing a bit of a retrace where we try to find support in the 12.2-12k range. Not saying we can’t run further, but hedged a bit here.”

Will PayPal’s Crypto Integration Turn Into A Tax Nightmare?

Possibly, the United States gains tax laws might catch out many new users of PayPal’s crypto payments system unexpectedly. The news that the payments company will support cryptos gave the sector a major boost. However, it comes with tax implications that are barely understood by the crypto newbies.

PayPal users will soon have the chance to use digital assets and cryptos to fund for purchases at the company’s 26 million merchants globally. The platform has around 350 million active users throughout the world. Based on that information, the CEO of the crypto lending platform Celsius, Alex Mashinsky, believes that the integration may result in ‘millions of new users’ diving into the crypto world.

Sadly, the new investors may encounter a tax nightmare that will arise from the volatile nature of the cryptocurrency assets and the tax reporting stipulations. The Internal Revenue Service (IRS) says that digital assets like Bitcoin are treated like property and not currencies.

It means that every time a trader sells, exchanges, or disposes of crypto to purchase something else, it becomes a taxable transaction. PayPal’s press release explains that the company will be acting as an exchange in addition to a payments gateway:

“Consumers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with a certainty of value and no incremental fees.”

Nevertheless, it will not enable cryptos to be taken off the platform and then get sent to a bank, or back to the wallet from where they came. Selling crypto within PayPal triggers a taxable process which is the same case that happens when using crypto to buy anything. PayPal will change the funds into fiat first and then pay the merchant.

Crypto Volatility May Affect Taxes Paid

Since bitcoin and crypto assets are quite volatile, users are liable for considerable capital gains tax on the amount the asset has gained between the time the user acquired it and then  spent it.

That might not be an issue provided that the users keep records and then put tax aside. Nevertheless, most of the new users are highly unlikely to understand the tax implications and requirements. Losses and gains eventually must be reported on IRS Form 8949 and then submitted with tax returns every year as explained by the authorities involved.

There was an example of purchasing a new TV set from one of PayPal’s merchants using 0.1 BTC as payment. In that scenario, the buyer would incur a capital gain (or loss) subject to the value change of that 0.1 BTC since they first bought or acquired it. If, for instance, the 0.1 BTC is now worth $1000 more than when the user bought it:

“You must report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain”

PayPal announced that it will be participating in relevant 1099 tax information reporting for its users. However, it was quick to add that individuals are responsible for their personal tax affairs:

“It is your responsibility to determine what taxes, if any, apply to transactions you make using your Cryptocurrencies Hub. You can access your transaction history and account statements through your PayPal account for purposes of determining any required tax filings or payments”.

The Rollout

There is a probability that the US tax authorities will need access to user account information to determine which users should be reporting the gains. At first, PayPal will just offer its new crypto payment services to the United States account holders. However, the service could be rolled out globally in 2021.

The United Kingdom also has similar capital gains tax implications. HMRC (Her Majesty’s Revenue and Customs) started actively chasing cryptocurrency traders in late 2019. Australian crypto traders and investors are also compelled to pay capital gains taxes and even income tax in the case that they earn digital assets. Notably, reporting is needed in both countries.

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Tags: AdoptionBCHBitcoinBitcoin cashBitcoin PriceBTCBusinesscryptocrypto-lendingcryptocurrenciesETHEtherEthereumLitecoinLTCmarket updateMarketsPaypalTaxesTechnology

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