How Paypal USD may affect Ethereum as first ‘stern warning’ appears

• PYUSD’s launch on the Ethereum blockchain could positively influence ETH, an analyst opined.
• The U.S. banking agency has cautioned banks from using the stablecoin.

The entry of PayPal USD [PYUSD] into the cryptocurrency market has been met with both applause and criticism. For those who align with the former, the development of PYUSD means increased adoption for the ecosystem.

Realistic or not, here’s PYUSD’s market cap in ETH’s terms

Others have, however, criticized the move. This latter cohort described the stablecoin development as a contrarian and a disruption to the fundamentals of the sector.

Not yet priced in

Bloomberg analyst Jamie Coutts was one of those who believes that the potential ramifications of the event have not yet been reflected on the current prices of assets in the market— particularly Ethereum [ETH].

According to Coutts, PayPal’s 435 million users against Ethereum’s one million active addresses means that the blockchain still has solid potential to grow. This, in turn, could affect ETH’s value positively. 

The @Paypal announcement is not priced in. #Paypal has 435M active accounts vs #Ethereum L1/L2 Active Addresses 1M.

If 1% covert a $ balance to $PYUSD (4.35M) and begin to use it then the ramifications for the #Ethereum ecosystem and $ETH, the asset, are massive. pic.twitter.com/cH3OH9Dmip

— Jamie Coutts CMT (@Jamie1Coutts) August 10, 2023

The possible reason for this opinion was that PayPal launched PYUSD as an ERC-20 token on the Ethereum blockchain. 

While Ethereum has solidified itself as a dominant force in the blockchain space, the emergence of a major player with its own USD-backed digital currency could improve traction and active usage of ETH. 

Meanwhile, PYUSD, having launched only a few days back, has encountered regulatory scrutiny. According to John Reed Stark, former internet enforcement chief at the U.S. SEC, the Federal Reserve had issued a warning about transacting with PayPal’s stablecoin. 

Banking Regulators Issue a Stern Warning to Any Bank Doing Business with PayPal, Continuing An Unprecedented Financial Regulatory Onslaught Against All Things Crypto.

The Federal Reserve just issued yet another announcement relating to any bank that has anything to do with the… pic.twitter.com/twfrsTBhi5

— John Reed Stark (@JohnReedStark) August 10, 2023

A probe into the stablecoin?

The latest Fed move may not be surprising, considering how hostile the U.S. environment has acted toward crypto firms. 

Based on the warning, the Fed noted the payment giant needs to prove that the stablecoin is in a safe and sound manner. The agency also referred to its press release of 27 January to back up this ground. Stark’s tweet, coined from the agency’s statement, read:

“This latest Federal Reserve supervisory letter mandates that state banks that are members of the U.S. Federal Reserve system must obtain a written supervisory nonobjection from the Fed before issuing, holding or transacting in dollar tokens used to facilitate payments, such as stablecoins, precisely the kind of stablecoins that PayPal just rolled out.”

AMBCrypto spoke to Gracy Chen, Managing Director of crypto exchange Bitget, on the matter. According to Chen, PYUSD’s launch could be very beneficial to the U.S. 

Read Ethereum’s [ETH] Price Prediction 2023-2024

She opined that the crypto-to-PYUSD conversion could improve convenience with payments in the country. In addition, Chen agreed with the aforementioned Coutts’ viewpoint.

In terms of regulation, Chen said,

“The launch of PYUSD also seems to highlight that the US digital currency regulatory policy is moving towards clarity and loosening. On July 28, the US House Financial Services Committee stated that the Clarity for Payment Stablecoins Act of 2023, and PYUSD was officially a test and experiment for compliance with the Stablecoin Act.”