Since October 2020, any PayPal user in the U.S. can buy, sell and hold Bitcoin.
But there's a big catch, according to cryptocurrency experts: Any cryptocurrency you buy on PayPal isn't technically yours.
You can't transfer your cryptocurrency purchases off the platform unless you cash them out to U.S. dollars first.
That may not seem like a big deal, especially for cryptocurrency newcomers. But for some investors, control over their coins is more important than convenience.
'When you go with a broker like PayPal, you get less flexibility and fewer options over managing your crypto,' said Adam Blumberg, a Certified Financial Planner and co-founder of Interaxis, an education firm for fintech, blockchain and digital assets.
So, should you buy Bitcoin or Etherum on PayPal? It depends on your long-term goals with cryptocurrency.
In this guide, we'll explain how to invest in cryptocurrency on PayPal. We'll also look at the pros and cons of using this popular payment processor to buy digital currency.
How to Buy Crypto on PayPal
If you already have a PayPal account, buying cryptocurrency is as simple as tapping 'Finances' then selecting 'Crypto' from the app or website homepage.
From there, follow these steps:
- Pick your cryptocurrency. PayPal currently offers four coins: Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
- Enter how much cryptocurrency you want to purchase. You can buy as little as $1 or as much as $100,000 per week.
- Select your payment method. You'll need to have available funds, a linked debit card or bank account to purchase crypto on the platform. You can't use a credit card to buy cryptocurrency on PayPal.
- Confirm your purchase. PayPal charges a fee for each buy and sell order executed on its site (more about those fees shortly).
If you don't already have a PayPal account, there are a couple additional steps you'll need to follow.
First, create an account. It's a relatively quick process, but you need to verify your identity, fill out a W-9 and agree to the company's terms and conditions.
The company may require other identifying information, such as a copy of your government ID or proof of residency, like a utility bill.
Once you link a payment method, you're ready to buy and sell cryptocurrency. You don't need to create a separate account on PayPal to do so.
You can also use crypto at checkout for select purchases, though you're not really buying goods with Bitcoin.
Instead, PayPal converts a portion of your cryptocurrency holdings on the platform into U.S. dollars at checkout, and sends that fiat money over to the merchant.
What Crypto Can You Buy on PayPal?
PayPal â€" and its child company, Venmo â€" offer just four cryptocurrencies.
- Bitcoin
- Ethereum
- Litecoin
- Bitcoin Cash
It's a limited selection considering there are literally thousands of cryptocurrencies on the market.
For newcomers, a small selection might be a good thing, though.
Most experts recommend starting your cryptocurrency journey with 'the big two' â€" Bitcoin and Ethereum â€" before jumping into more obscure alt coins.
PayPal Crypto Fees
PayPal charges transaction fees based on how much cryptocurrency you want to buy or sell.
As of April 2022, the transaction fee model looks like this:
PayPal Cryptocurrency Trading Fees (as of April 2022)
| Buy/Sell Amount (in USD) | Fee | |||
|---|---|---|---|---|
| $1 - $4.99 | $0.49 | |||
| $5 - $24.99 | $0.99 | |||
| $25 - $74.99 | $1.99 | |||
| $75 - $200 | $2.49 | |||
| $200.01 - $1,000 | 1.80% | |||
| $1,000.01+ | 1.5% |
PayPal's fee structure is pretty competitive with major cryptocurrency exchanges like Coinbase and Gemini. You may find lower fees at more advanced cryptocurrency exchanges like Kraken and BiNance.
PayPal also charges a spread, or margin, between the market price it earns from its trading service provider and the exchange rate between USD and crypto assets shown to each user.
The company estimates spreads at 0.50%, but PayPal acknowledges that the spread may be higher or lower, depending on market conditions.
PayPal will not separately calculate or disclose the spread it earns on each transaction, according to the company's FAQs.
Cryptocurrency Brokers vs. Cryptocurrency Exchanges
PayPal is what's known as a cryptocurrency broker. It interacts with Paxos Trust Company â€" a regulated cryptocurrency provider â€" on your behalf, making the process quick and easy from a user perspective.
Other cryptocurrency brokers include:
- Robinhood
- SoFi
- Webull
- Cash App
In the world of cryptocurrency, two things make your coin ownership official: A public and private key pair.
The public key is your wallet address where crypto can be sent and received, and the private key gives you control over those assets.
With PayPal and other brokers, you have access to your public address, but the company controls your private key.
A private key is like a heavily encrypted code that gives you protected access and total control over your cryptocurrency. It isn't tied to a third-party company.
In this way, you don't really 'own' cryptocurrency purchased through a broker like PayPal.
'If the company or government decides to shut off your account, you can't access your Bitcoin,' said Blumberg.
You also can't take coins off the platform or transfer them to other users. Instead, PayPal requires you to sell your coins and transfer the cash to an external account.
'You basically own a derivative of Bitcoin when you buy it on PayPal,' Blumberg said. 'If you want to sell, you have to sell it on PayPal. You can't move it to a different exchange or put it in a hardware wallet.'
For cryptocurrency purists, handing over your private key to a major corporation like PayPal goes against the core principles of Bitcoin and blockchain technology, which was built to be a new, incorruptible monetary system resistant to censorship and top-down control.
'By using a broker, you are trusting them to keep your keys safe,' said Taha El-Magbri, head of strategy for Castle Finance, a DeFi-focused software company building risk-management products and financial tools. 'Access to your crypto is restricted by a third party, and as history has shown, even tech-giants like PayPal and Google are prone to security breaches.'
That's why serious crypto investors believe private key access is so important. Until the coins can be offloaded from a third-party site and stored in a wallet, they're never truly safe â€" and never truly yours.
Centralized exchanges â€" like Coinbase, Gemini and BiNance â€" allow you to move your cryptocurrency off the platform to a private wallet (or transfer it to someone else) without converting it to fiat currency first.
You can also trade one cryptocurrency for another.
Setting up an account on a site like Coinbase or BiNance is a little more complicated and time-consuming than opening the PayPal app on your phone.
PayPal acts as an intermediary â€" but that isn't always a bad thing.
You may not want all the responsibility of keeping track of private keys and navigating cryptocurrency exchanges.
If you simply want to buy Bitcoin then sell when the price rises, PayPal works.
Brokers are also user friendly.
'These apps are super simple to set up, transfer funds to, and within minutes, inventors can buy Bitcoin,' said Jeff Rose, a Certified Financial Planner and founder of Wealth Hacker Labs. 'Coinbase is also simple but requires a few more steps in the approval process.'
Pros and Cons of Using a Cryptocurrency Broker Like PayPal
Where you purchase cryptocurrency is important.
If you're considering buying Bitcoin or Ethereum through a cryptocurrency broker like PayPal, it's important to understand the pros and cons first.
Pros
PayPal really shines for new users and people who want to invest small amounts of money into cryptocurrency.
- Easy-to-use interface. â€" The PayPal app is accessible and the entire purchasing process takes just a few seconds if you already have a PayPal account.
- You don't need much money to get started. â€" It only takes $1.
- You don't need a seperate account to buy, sell or hold cryptocurrency. â€" You can invest in crypto with the same PayPal account you use to pay bills or receive money from friends.
- It's an easy way to get your feet wet. â€" If you're just starting out with small sums of money, using a familiar app you trust to purchase cryptocurrency makes sense.
- You don't need to keep track of your private key. â€" In the past, if you lost the private key to your cryptocurrency wallet, you lost your coins forever. No company or bank could help you retrieve it, and you were solely responsible for keeping your keys safe. PayPal acts as a custodian, so you don't need to worry about keeping track of this information.
Cons
If you plan to invest in cryptocurrency long-term, PayPal probably isn't the best platform.
Here's why.
- Limited selection of coins. â€" PayPal only offers four types of cryptocurrency. Exchanges like Coinbase and Gemini, in contrast, offer 100+ different digital coins. If you want to experiment with other cryptocurrencies, you'll need to use an exchange.
- You may not be able to access your cryptocurrency. â€" PayPal reserves the right to freeze or deactivate any account on its platform. It can also halt cryptocurrency orders during extreme market conditions and other circumstances.
- You don't actually 'own' your cryptocurrency. â€" You need to exchange your coins for U.S. dollars if you want to get them off the platform.
- Fees can be steep. â€" In March 2022, PayPal increased cryptocurrency transaction fees again. You may be able to buy and sell digital assets like Bitcoin at a lower cost using other brokers or a centralized exchange. PayPal could also raise fees in the future, making it cost prohibitive to get your currency off the platform.
Buying Crypto on PayPal: Is It Right for You?
Buying cryptocurrency on PayPal isn't necessarily a bad thing, especially if you're new to the crypto game.
The company makes it simple and painless to experiment with a small crypto balance on a familiar platform.
PayPal can be a good entry point for 'crypto curious' investors â€" people who want to see what all the hype is about but who don't intend to place frequent trades with obscure coins.
'People already have money in their PayPal account,' Blumberg said. 'It makes it easy to get exposure to crypto.'
Suze Orrman, a famous personal finance expert, told Time magazine in August 2021 that she bought $5,000 of Bitcoin through PayPal because 'it was just easy to do it.'
Orrman also said she doesn't plan to create a private crypto wallet to store her assets long term.
So really, it comes down to personal preference.
Regular traders still favor transferring large amounts of cryptocurrency from brokers and exchanges to a wallet for more private storage and maximum security.
'If the government comes in and shuts down crypto operations on places like PayPal and Coinbase, suddenly you may not have access to your Bitcoin,' Blumberg said. 'It's unlikely, but it's the principle behind it.'
In the end, experts agree it's more important to understand the risks involved with investing in a volatile asset like Bitcoin than it is to pick the perfect platform.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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