Recent developments indicate major shifts may be ahead in the cryptocurrency market, with the importance of stablecoin growing, PayPal rumored to announce a partnership with Paxos to offer crypto trading, and Mastercard expanding its own cryptocurrency program. 

In an economy still reeling from the impact of the COVID-19 pandemic, replete with lockdowns, shifts to telecommuting and business closures, cryptocurrency trading is becoming an attractive alternative to many businesses and investors alike. 

With recent moves to introduce or expand crypto-based services by more established and commonly-used payment providers, a mainstream adoption of digital currencies may not be far off. Here is what you need to know about it. 

The Drift towards Stability on the Cryptocurrency Market: Stablecoins

Recently, stability has increased as a factor of importance in the cryptocurrency market.

After the massive value growth of cryptocurrencies throughout 2017 and the subsequent bursting of the bubble in early 2018, the market see-sawed until the beginning of 2020. Just when it seemed another growth spike was taking off, the pandemic stock market crash sent it tumbling again. Since April, crypto values have roughly returned to February levels.

Throughout this period, one sector of the cryptocurrency market has outpaced the others in terms of growth - stablecoins. 

Unlike currencies whose value is volatile and driven by supply and demand, stablecoins are typically bound to a fiat currency, although some are pegged against other cryptocurrencies. Prominent examples of stablecoins include Tether (USDT), USD Coin (USDC), or Binance USD (BUSD), all equivalent to $1.

Stablecoins have been on the rise, measured by market cap and transaction volume, since the 2018 crash. This indicates their buyers value both their innate crypto advantages and the much lower volatility of fiat currency. It also suggests the use of cryptocurrency as a vehicle for speculation is now giving way to actual use for transfers and longer-term holding.

In the tailwind of the crisis, many of these stablecoins have been doing well. 

For example, immediately after the stock crash in March, Tether's daily transaction volume shot up from around $50 billion to nearly $100 billion. This spike was fueled by buyers converting both from USD and other cryptocurrencies, leading the currency issuers to make several billion new USDT available, for a total market cap now exceeding $10 billion. Now, as the volatile currencies are approaching pre-crisis values, USDT transaction volumes are sinking again.

Breaking into the Cryptocurrency Market - PayPal partnering with Paxos 

Though official confirmation is still lacking, it has emerged that payment processor PayPal PYPL, with its mobile payments division Venmo, is now set on breaking into the cryptocurrency market. 

A letter from PayPal to the European Commission, leaked earlier this week, shows that the payment provider was working on crypto capabilities even before March.

Now, it seems, the process is coming to fruition, with an announcement by PayPal expected as early as the end of this week.

Reportedly, it has picked the Paxos Trust Company, a regulated financial institution that digitizes and mobilizes assets, as its partner in offering the service, over principal rival Coinbase.

Less than a week ago, Paxos introduced Paxos Crypto Brokerage, a new API-based solution that allows companies to integrate cryptocurrency buying, selling, holding, and sending capabilities into their own applications. Paxos takes care of the underlying regulatory and technological complexity.

Paxos had previously struck up partnerships with fintech leaders such as Square SQ, Robinhood, and Revolut. Some of these have been highly profitable, with Square reporting its first-quarter revenue from Bitcoin-based services at $528 million, surpassing its mainstream financial services. 

A PayPal partnership is a step up for both Paxos and the cryptocurrency market as a whole. With over 300 million users globally, PayPal is among the largest payment facilitators - and now set to become a key gateway into the cryptocurrency market for millions of its clients.

Bringing Cryptocurrency to Everyday Life - Mastercard Delves Deeper into the Market 

Another push towards the mainstream is aided by Mastercard MA recently announcing an expansion of its cryptocurrency partner program. 

A practical limitation for many cryptocurrencies, until recently, was that they're accepted by only a few brick-and-mortar businesses. From gas stations and supermarkets to hairdressers and pharmacies, cryptocurrency holders find themselves stymied when it comes to using their holdings to purchase services and products.

Mastercard's announcement means that crypto-wallet providers can now issue secure, compliant, Mastercard-branded payment cards to their customers. Thus bringing cryptocurrency into everyday life.

The initiative was launched as part of Mastercard's Accelerate program, with the London-based cryptocurrency platform Wirex as its first major partner.

Technically, Mastercard does not enable clients to spend cryptocurrency directly with merchants. It converts cryptocurrency into fiat first, which is then used for transactions. This saves users from the effort and time needed to convert to fiat themselves for a given purchase. With the notorious short-term volatility of some cryptocurrencies, the automation of the conversion process is a welcome relief to many.

Overall, this increase in fungibility marks a defining shift towards legitimacy in the still-nascent cryptocurrency market.

"The cryptocurrency market continues to mature, and Mastercard is driving it forward, creating safe and secure experiences for consumers and businesses in today's digital economy," Raj Dhamodharan, Mastercard's executive vice president for digital asset and blockchain products and partnerships, said in a comment.

Mastercard is in good company. In a pioneering effort, Coinbase launched its own card in 2019 - in partnership with Visa, Mastercard's principal competitor. 

The Drift towards Stability and the Mainstream 

Altogether, recent developments suggest an overall drift towards stability in the cryptocurrency market, as well as an accelerating movement towards opening it up to the mainstream. 

The wider implications of this shift in the cryptocurrency market remain to be observed. It seems clear that the increased proportion of stablecoins in the overall market is making other cryptocurrencies relatively less attractive. At the same time, that market is expanding rapidly, and one major use of stablecoin is easier trading of other cryptocurrencies.

Other questions - such as whether PayPal users will widely adopt cryptocurrencies, or whether crypto owners will want to expend their holdings on everyday purchases with Mastercard's offer, rather than speculate or hold onto them as investments - remain open. 

Overall, the situation is summed up well by Simon Taylor, head of ventures at fintech consultancy firm 11:FS, in an interview with CNBC: "This is less a watershed moment and more part of a broader, slow and steady legitimization of crypto as the global regulators increasingly put systems and controls in place."