Should you use PayPal to invest in crypto?

PayPal makes it easy to buy digital currencies, but the number of cryptocurrencies available is limited compared to using a platform like ICONOMI, Coinbase and eToro. Whether you should use PayPal to invest in crypto depends on whether its benefits make it the best option for you. We explore them here.

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Should you use PayPal to invest in crypto?
  • PayPal offers a platform to buy cryptocurrencies from a standard PayPal account.
  • It offers the ability to invest in many different types of digital currency, like Bitcoin.
  • It currently doesn’t have an external wallet exchange, which can limit its usage.
  • Its PayPal USD may be a way around this issue as it can sometimes be used to buy goods online.

Buying cryptocurrency with PayPal: FAQs

  • Can you invest in Bitcoin with PayPal?

    Yes, you can buy Bitcoin (BTC) via PayPal. You can buy, hold and sell it just like other cryptocurrencies using several different payment methods, such as the U.S. Dollar or British Pound.

  • What are the risks of cryptocurrencies?

    Cryptocurrency has several risks - though not all are unique to crypto. For example, while it is a volatile asset class, other assets can be volatile, like stocks. However, dangers like fraud and money laundering are more heightened when investing in crypto. Additionally, the fact that it is decentralised may be a disadvantage to some investors - though to others, it will be part of its appeal.

  • What types of cryptocurrencies are there?

    There are countless types of crypto, such as stablecoins, security tokens and utility tokens. Each one will operate on its own blockchain technology, with unique features and uses. Some cryptos will be designed to be currencies for transactions, while others will zone in on offering smart contract functionality.

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Which platform you use to invest in crypto depends entirely on you and your situation. Using PayPal for investing in crypto has the following benefits and drawbacks:

  • Pro: Easy accessibility.
  • Pro: Regulatory protection.
  • Pro: PayPal balance.
  • Pro: PayPal USD.
  • Con: Transaction fees and exchange rate.
  • Con: No external wallet exchange. 
  • Additional: Regulatory compliance. 

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Let’s look at those in more detail below. 

Pros of using PayPal to buy cryptocurrency

Easy accessibility 

Buying cryptocurrency on PayPal is easy if you're already a PayPal customer. That’s great as it means you don’t have to download yet another type of financial services app in addition to the ones you already have. 

Regulatory protection

PayPal will protect your cryptocurrency purchases in the event of unauthorised activity taking place, provided that you have taken care when purchasing and followed all of PayPal’s terms and conditions.

When this protection applies, PayPal will cover you for the full amount of unauthorised activity as long as you cooperate with them and follow the procedures for the unauthorised transaction process described in the PayPal User Agreement. You should contact PayPal immediately if you suspect fraudulent purchases or sales in your cryptocurrency account. 

PayPal balance

When you purchase or sell a cryptocurrency with PayPal, you’ll see your balance immediately reflected in your personal PayPal account. If you have many different investments in many different places, being reminded of your crypto holdings every time you log in to PayPal makes keeping track of your holdings far easier. 

For example, when you log into your PayPal account and click Crypto, you can see your total available balance and holdings in GBP, including Bitcoin, Ethereum, Litecoin and Bitcoin Cash. 

PayPal USD

PayPal USD (PYUSD) is a stablecoin backed by secure and highly liquid assets such as dollar deposits, US treasuries and other cash equivalents. It may be an attractive feature of using PayPal as it is designed to maintain a stable $1 USD value. It allows you to buy and check out goods online as PayPal will sell your PayPal USD so you can pay for your items.

Cons of using PayPal to buy cryptocurrency

Exchange rate and transaction fees

When you buy or sell crypto with PayPal, the platform discloses the exchange rate and the transaction fee you will be charged.

  • PayPal's exchange rate includes a margin they earn on each transaction when you buy or sell. It covers the conversion of your funds into GBP and the cryptocurrency, usually bought in US dollars.
  • The transaction fee is a cost you pay to process your transaction on the PayPal platform.

PayPal receives a wholesale rate quote from their bank twice a day, and they add a percentage fee to determine the retail foreign exchange rate for currency conversions. You can check the current exchange rate for different cryptocurrency prices on PayPal. The exchange rate applies when you: 

  • Buy cryptocurrency: If you are using a currency (e.g., USD) to buy cryptocurrency, and your PayPal account is denominated in a different currency (e.g., GBP), PayPal will apply an exchange rate to convert the USD amount into GBP.
  • Sell cryptocurrency: If you are selling cryptocurrency and receiving funds in a currency different from the cryptocurrency (e.g., converting Bitcoin to USD), PayPal will apply an exchange rate to convert the received amount into your account's currency.

You need to compare the exchange rates and transaction fees on all purchases and sales to ensure you get the best deal and value possible when you buy or sell cryptocurrency. There are times when PayPal’s fees could be higher than other crypto exchanges

No external wallet exchange

As of November 2023, PayPal doesn’t allow you to transfer cryptocurrency to external wallets - as they do traditional currency or cash. That limits how you can use your crypto assets, so you could find other exchanges, such as Coinbase for example, may be better. 

Additional considerations 

Regulatory compliance

PayPal is registered for certain cryptocurrency service activities with the Financial Conduct Authority (FCA). That means it must adhere to regulatory standards, which may give you more confidence to buy digital currencies and participate in crypto sales. However, you should keep in mind that the Financial Services Compensation Scheme (FSCS) does not cover PayPal as they are considered an e-money company, not a bank. 

PayPal Buyer Protection does not apply to cryptocurrency purchases. And PayPal does not provide insurance or insure you against losing your crypto assets.

How to invest in cryptocurrency with PayPal 

As your PayPal account is linked to your bank account or has a debit card or a credit card set up with it, it is possible to buy several different types of cryptocurrency, such as Bitcoin, Ethereum, Litecoin, and Bitcoin Cash, directly in exchange for your money. 

To buy cryptocurrency through PayPal, follow these steps: 

  1. Access PayPal’s cryptocurrency platform through a PayPal account, either on the PayPal app or website. 
  2. Go to the Crypto section on your app and choose the cryptocurrency you want to buy.
  3. Decide how much you want to buy.
  4. Confirm you are happy with the exchange rate and transaction fees before hitting purchase. 
  5. The currency you buy is then stored in your account’s digital wallet. 

Investing in cryptocurrency via PayPal

While investing in cryptocurrency PayPal is easy, the question remains whether investing in crypto is a good idea. Highly volatile market movements typify the asset as a whole - so many argue it is a very speculative investment. As such, if you are looking to retire soon, it may not be the best investment for you, given the high chance you will lose some, or all, of your money.

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