[Han Dae-hoon] Transformation of bitcoin

[Han Dae-hoon’s investment tips] The price of Bitcoin has started moving again – mainly for three reasons. First off, due to the pandemic, countries increased money supply, putting pressure on national currencies. Bitcoin, therefore, has risen as an alternative. The second reason is due to the real estate regulations and the skyrocketing stocks price, which have led those looking for alternatives toward cryptocurrencies. The third reason is the acceleration of digital finance, triggered by PayPal. #PayPal and the rise of bitcoin price PayPal, which has 350 billion users around the world, announced plans to join the cryptocurrency industry with support for bitcoin and other digital currencies. This will allow PayPal account holders to store, buy and sell the virtual currency by the end of the year, and to make transactions using cryptocurrency possible by early next year. The decision implies that PayPal has jumped into finance and commerce industry based on cryptocurrency. By the first half of next year, PayPal plans to extend support to its money-sending subsidiary Venmo. #2017 again? In 2017, the value of bitcoin jumped on high expectation of the new type of asset. It was similar to the dot-com bubble, which was a stock market bubble caused by extensive speculation in internet-related companies in the late 1990s. But digital assets, including bitcoin, were not fully prepared to be widely used, and interest towards them quickly faded. But things are different now. It is no longer a speculative asset, but is rapidly growing centering on finance, like payment and money-sending. Such a trend is expected to continue in the future, and therefore, the chance of Bitcoin quickly fading like it did in 2017 is believed to be low. #How will Bitcoin and other digital assets react in the market? Starting next year, PayPal plans to extend business to cryptocurrency services. According to the PayPal announcement, 26 million affiliated stores plan to accept payment through cryptocurrencies. The price change of cryptocurrencies won’t affect the affiliated stores’ sales, as the stores will get paid based on the price of the cryptocurrency on the day the transaction was made. But whether PayPal users, who mostly own cryptocurrency as investment, will actually use cryptocurrency to make payments is something that needs to be worked on. Change in the finance industry is also expected. PayPal’s support for cryptocurrency payment will not only extend to digital currencies but could also expand the existing finance system to digital finance system. U.S.-based Square, the payments company by Twitter CEO Jack Dorsey, has seen its stock price rise. Its Cash App is a payment app that allows for direct peer-to-peer payment through mobile phones. But fintech companies as well as the existing finance companies have not been active in entering the field of digital assets. PayPal is likely to have been stimulated by rival Square. The chance of Microsoft and Starbucks adopting bitcoin for transaction was raised, but no specific plans have been announced. Regardless, global payment companies accepting bitcoin for their service suggests the role of bitcoin in the future of digital assets. #Not yet over Although expectations towards bitcoin have risen on PayPal’s announcement, there is still room for progress. China completed its test of a Central Bank Digital Currency (CBDC) in the Chinese city of Shenzhen. The European Union and Bank of Japan continue to do their research on CBDC, and Bank of Korea, which was reluctant about the CBDC is also conducting research on it. If CBDC becomes actualized, payments using credit cards or making transactions through banks could decline. Amid the progress by tech companies, finance institutions have not yet been able to bring up answers or alternatives to the trend that is shifting to digital currencies. Currently there aren’t clear answers about where finance is headed, but amid the change, the existing financial institutions have to look back on how they are preparing to respond to the changes. Han Dae-hoon, SK Securities analyst

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