Bitcoin’s Price Skyrockets Following PayPal’s Hug

This morning, PayPal rolled out broader support for bitcoin, allowing merchants to accept the cryptocurrency as payment for digital goods. The reaction to bitcoin itself has been immediate and positive.

The PayPal integration is minor — users won’t be able to start stashing their bitcoin in their PayPal accounts, but merchants that use certain PayPal services, and are located in North America, will be able to accept bitcoin. PayPal is relying on several bitcoin payment providers to manage the transactions. The implication there is that PayPal, and its parent company eBay, will never hold bitcoin themselves.

The news had an immediate impact:

Screen Shot 2014-09-23 at 11.27.34 AM

Hello bitcoin, and welcome back to form.

The other side of the above is that PayPal is willing into existence a host of new exit points for current bitcoin holders. The argument is simple: The easier it is for current bitcoin holders to cash out their holdings for IRL, or meatspace, goods, the more they will. If it was hard to do so, there would be more friction and thus less activity of that sort.

PayPal, therefore, is assisting in the creation of potential downward price pressure on bitcoin. If more people cash out of bitcoin by spending it through BitPay and other providers than new money and interest flows into the system, it stands to reason that negative price pressure could develop.

And thus the irony: The news that bitcoin is seeing greater adoption among mainstream payment providers sends the price up, even as the facts of the news itself might bring it down. For now, bitcoin fans are having a quite nice time.

Keep in mind that bitcoin is rising off its long-time $400 floor once again. Something to keep in mind.