How a crypto firm is courting new users in a bear market

Even with cryptocurrency in a downcycle, digital asset firms are entering distribution partnerships to help them quickly find new users for their investing and payment services. 

Bitstamp, for example, recently integrated with PayPal to allow PayPal's customers to fund crypto purchases, adding nearly 400 million potential users. That follows quickly on the heels of Coinbase's partnership with Google and BitPay's new collaboration with the blockchain development platform Polygon. 

"Almost every institution on the planet is trying to find out what its crypto play is," said Bobby Zagotta, CEO and chief commercial officer at Bitstamp. "They want to know if they need to have a crypto play and what is the risk." 

The value of cryptocurrency has plummeted in recent months, but consumers remain drawn to investing in and eventually using digital assets for payments, creating a need for crypto firms to navigate a market slowdown, reach new users and make sure those novices are comfortable with an asset that frequently changes value. 

Bitstamp recently launched a learning center that explains how the markets work and provides definitions and outlines for staples of the crypto world — like blockchain, distributed finance, forks, nonfungible tokens and the difference between crypto coins and tokens. 

"So if any of these users are new to crypto markets, they can have easy access to help them on their journey," Zagotta said. 

PayPal is the most recent distribution partner for Bitstamp, which earlier enabled crypto purchases via Apple Pay and Google Pay user accounts, and has partnered with banks such as Silvergate, the crypto-specialist bank that's also developing the stablecoin Diem. PayPal, which did not provide comment, is the most requested partner among Bitstamp's users, according to Zagotta.

"Part of that process is making buying and selling crypto as simple as possible," said Zagotta, adding most consumers are familiar with these larger payment companies. 

PayPal is considering building its own stablecoin, and has supported buying, selling and holding crypto for more than a year on its main app and Venmo peer-to-peer payment service. Users of these services, generally consumers, can build crypto balances, then have a large venue of available merchants to make payments. 

PayPal, which is also in the midst of upgrading its point of sale technology, recently made additional moves into crypto. The company has allowed consumers to add crypto to non-PayPal wallets, and earlier in 2022 made its crypto buy/sell/hold service available on its mobile app. 

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Bitstamp is taking a bet on the appetite of retail customers to resume, or continue to engage, in digital- asset trading, even when faced with high interest rates, inflationary headwinds, digital-asset price volatility and other challenges, according to Wally Okby, a strategic advisor at Aite-Novarica. 

"Bitstamp's integration with PayPal essentially opens a new, potentially lucrative, distribution channel for retail individuals to transact in digital assets," Okby said.

The decline in crypto valuations — bitcoin has fallen from more than $60,000 to around $20,000 in less than a year — has caused losses in the addressable market of investors. Bank of America, for example, has lost more than 50% of its crypto investors, according to Bloomberg.  

But the bear market has not completely eroded consumer interest in crypto.  Forty percent of consumers between 18 and 45 plan to buy crypto over the next six months, according to Checkout.com.  And 80% of U.S. and U.K. crypto owners in a PayU survey in June indicated that they were eager to use their crypto balances to make payments when merchants support that option. 

While crypto owners favor using their digital assets to pay for more expensive purchases, crypto could soon be used for smaller transactions, Elbruz Yilmaz, senior vice president of crypto and web3.0 at Paysafe, said in a written statement.  Ninety-one percent of crypto owners in PayU's survey said crypto payments will be as common in the future as paying with a credit card. 

Bitstamp, which was founded in 2011, contends its experience with several crypto corrections provides experience in dealing with dramatic market swings. "We've navigated a lot of market environments, so we have a playbook," Zagotta said. 

Other crypto companies are entering partnerships to build scale. BitPay, which provides bitcoin and crypto payment services, recently added support for Polygon, a blockchain development platform that has been adopted by more than 37,000 decentralized applications and processed more than 2.1 billion transitions. BitPay also added support for MATIC, Polygon's native currency.  Polygon's distribution partners include Stripe, Meta Labs and Adobe. 

"Merchants can now offer users more choice in what digital asset to pay with. BitPay users can now buy store swap and spend MATIC from our app," Bill Zielke, chief marketing officer, said in an email. 

And in October, Google announced it would allow customers to pay for cloud services with cryptocurrency, while Coinbase will access Google's cloud to support its range of payments, crypto services and financial services. 

Coinbase has been expanding its range of products since its 2021 public listing as it builds a super app. The pairing of Coinbase and Google will potentially result in Google accepting more types of crypto for payments. Google did not provide comment by deadline. 

Coinbase referred questions to the company's announcement of the Google partnership. "Web3 is the next generation of the internet that will allow people to own digital property within an open, decentralized environment," Coinbase's announcement said. 

The growth of partnerships between exchanges and payment firms could threaten banks, according to Okby.

"I will be on the lookout for statistics that illustrate the amount of money leaving traditional financial institutions to crypto exchanges to facilitate client demand for liquid coins," Okby said. "To the extent that happens, it will be interesting to see how PayPal stacks up as a key distribution partner for Bitstamp and other exchanges."