Stocks to buy

PayPal and Crypto: A Risky Mix or a Winning Formula for PYPL Stock?

If PayPal (NASDAQ:PYPL) were valued like Visa (NYSE:V), PayPal stock would rise. This could have important implications for PYPL stock investors.

The world’s biggest payment processor is now America’s most valuable bank. Its shares are up almost 20% over the last year and are now priced at 32 times earnings. PayPal, meanwhile, is down over 20% in the last year and sells at 18 times earnings.

But PayPal isn’t Visa. One reason is its big bet on crypto.

The Crypto Bet

Paypal runs a crypto stablecoin called PYUSD (PYUSD-USD). Stablecoins are seen as a bridge between the world of fiat currencies, like the dollar, and crypto coins, like Bitcoin (BTC-USD). If you buy something with Bitcoin, PayPal will sell your PYUSD to make the transaction work. PayPal also enables the sending of PYUSD within the U.S. without fees.

The first step in making it work for PayPal is for PYUSD to be accepted in the crypto community. PayPal is doing this with “incentives” on Curve Finance and getting it accepted at sites trading Ethereum (ETH-USD), like AAVE.

The “use case” is that PYUSD will be borrowed or lent on the platforms. Lending through a stablecoin means holding it. PayPal has $291 million in PYUSD circulating, which trades just like any cryptocurrency.

Evaluating the Bet

Making this bet pay off requires that consumers start using PYUSD, and thus other forms of crypto, the same way they do dollars. It’s the transaction volume moving through PYUSD and the money made by PayPal through those transactions that matter.

All the excitement over Bitcoin’s rising price and the launch of Bitcoin ETFs play into this. The idea is that people will buy Bitcoin, see its value rise, and then use that value through PYUSD on goods and services. That’s the use case.

Part of building the case is to integrate PYUSD into PayPal’s other operations, like Venmo. But until people start moving around real markets using PYUSD, it’s a risk that normal processors don’t have.

No Thanks

PYPL stock does a lot of business that critics don’t trust.

It’s huge in the casino business, for instance. That’s why the stock remains “a bargain.” It’s also why some long-time holders are bailing.

Even analysts who like CEO Alex Chriss have downgraded the stock recently, believing he faces a multi-year turnaround. They note that the core branded checkout business is getting hammered by the Cloud Czars, like Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG), who are pushing both consumers and merchants toward their wallets.

Among the recent bears is Morgan Stanley (NYSE:MS), based on the slow growth at Venmo and its branded checkout solution. But even Morgan Stanley now rates PayPal an “equal weight” holding. They’re not telling people to sell it.

Analysts like Mizuho’s Dan Dolev are filled with advice on what Chriss should do. Prominent is the idea that PayPal should integrate all its offerings into a “super app,” a global digital wallet that handles any form of exchange and any currency, including crypto.

Does that sound familiar? It’s just what Tesla (NASDAQ:TSLA) CEO Elon Musk is doing with X, and what Musk tried to do while at PayPal back in the 1990s.

The Bottom Line

If you believe in crypto, PayPal should be one of your core stock holdings. It’s cheap, and if PYUSD takes off, the stock is a value investor’s dream.

I remain skeptical. Maybe it’s because I just turned 69. Even on PayPal’s site describing PYUSD, there’s nothing it can do that doesn’t depend, ultimately, on crypto. The costs of trading crypto directly remain dramatic. The value of crypto is held up entirely by traders. PYUSD itself is a workaround, backed by dollars, not by Bitcoin.

I’d rather hold Visa or another payment processor like Fiserv (NYSE:FI).

As of this writing, Dana Blankenhorn had LONG positions in AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.