Fed Now's Dry Run?

by Andrew Zatlin August 11, 2023 3:00 pm ET

In the midst of the government's FedNow initiative...

PayPal just launched its own digital currency.

You'd think the government would be upset about it.

But perhaps surprisingly, the government's ecstatic. And its excitement sets up a major investment opportunity.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Fed Now's Dry Run?

Earlier this week, PayPal (PYPL) dove headfirst into the cryptocurrency space.

The company just launched its own digital currency, becoming the first major U.S. financial business to launch its own dollar-backed stablecoin.

This is a huge step toward legitimizing cryptos. But it makes you wonder:

With the government's FedNow initiative – including the rollout of a central bank digital currency ("CBDC") – ramping up, why did PayPal choose right now to launch its own crypto?

Will the government shut it down? Not so fast...

This Wasn't a Rash Decision

Before we get to the Fed's stance, let's take a closer look at PayPal.

PayPal is a mainstream financial services company. It's been around for nearly three decades and facilitates 70% of transactions on e-commerce marketplace eBay (EBAY). You might even use it to make online purchases or transfer money.

This isn't a fly-by-night operation. It's a $68 billion business. And now it's released an important new currency.

What's a Stable Coin?

I'm referring to PayPal USD, a new cryptocurrency that will resemble a stablecoin.

Stablecoins are powerful because they're tied to – and backed by – the U.S. dollar. Bitcoin, for example, is not a stablecoin. Its rise and fall isn't correlated to the power of the dollar. That has its benefits, but it also makes it a risky form of currency.

PayPal's stablecoin will mean that users can conduct transactions using this digital currency. They'll also be able to use it to make peer-to-peer payments and transfer it to external cryptocurrency wallets.

But shouldn't PayPal grabbing the spotlight irk the federal government?

On the contrary...

You Have Our Blessing

I'm convinced that PayPal released this currency with the blessing from the Fed. Here's how I can tell:

In the crypto space, one of the leaders is a platform called Binance. This company operates the largest cryptocurrency exchange in the world.

Not long ago, Binance tried releasing its own stablecoin. But the Fed and Securities and Exchange Commission ("SEC") shut it down.

But so far, PayPal's release hasn't generated a peep from the Fed. And there are a couple of key reasons why...

Playing By the Rules

First, Binance's digital currency was intended to be exchanged internationally. And the U.S. government doesn't like when its funds transfer overseas, where they're harder to monitor.

PayPal, meanwhile, is focused only on the U.S. market. Furthermore, it's playing by all the rules. It's meeting all regulatory requirements and seems to be working with the government to unveil this new currency.

But there's another reason why this is going off without a hitch...

FedNow's Dry Run?

PayPal's new currency is merely a dry run for FedNow.

By releasing a stablecoin to users of one of the biggest financial companies out there, it gives people plenty of exposure to this form of currency. Presumably, it'll help make it become more mainstream, just in time for FedNow's CBDC to launch.

So, what's the investment play here? Do we invest in PayPal?

The Pros and Cons of PayPal

It's an intriguing idea. PayPal is a legitimate operation and will likely see a boost in growth.

But remember, the bulk of its growth (at least when it comes to its stock price) has already been captured. So there's a ceiling here.

However, a statement from the company hinted at another investment idea. Here's the quote:

"We are bringing to bear all the infrastructure that we have built over the years."

Did you catch that key word? Infrastructure.

Both PayPal's new coin and FedNow's CBDC will require solid infrastructure to be effective. And I've got a company that's at the center of all this infrastructure growth.

The details about it are only for my "Pro" subscribers, though, so make sure you're one of them.

We're in it to win it. Zatlin out.