Is investing in cryptocurrency via PayPal a good idea?

Is investing in cryptocurrency via PayPal a good idea?

 · 8 min read

If you've been looking for ways to invest your money in the last couple of years, you might come across cryptocurrency as an option. Recently, PayPal began allowing its users to purchase specific cryptocurrencies through its platform. But how do you really invest in crypto through PayPal? And, ultimately, is it a good idea?

Buying cryptocurrency with PayPal: FAQs

  • Can you invest in crypto with PayPal?

    You can invest in crypto through PayPal, and you can do so with as little as $1 or £1. You can buy Bitcoin, Bitcoin, Ethereum and Bitcoin Lite with PayPal, and you can do so by purchasing just a small amount of one of these cryptocurrencies - which usually trade for much higher for an entire token on other platforms. In doing so, you are almost buying a derivative of the cryptocurrency in question as you never fully own the underlying asset. In this instance, that means you do not hold the private key required to be the sole owner of a cryptocurrency token.

  • What are the best cryptocurrencies to buy?

    The best cryptocurrency to buy for you will be down to your specific circumstances and requirements as with any investment or asset. Some cryptos, like the infamous Bitcoin, have an exceptionally high price point if you want to buy one token with both its private and public key. Others will be much lower but may be more illiquid due to smaller and fewer market makers.

  • What are the risks of cryptocurrencies?

    Cryptocurrency has several risks - though not all of its risks 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 definitely 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 definitely be part of its appeal.

  • Is Crypto dead?

    More often than not, people ask if crypto is dead when it is going through a sudden slump. The fact of the matter is, while Bitcoin and its peers are unregulated and decentralised, it cannot be 'switched off' and killed. Instead, it keeps going as there is no one entity overseeing it with the powers to stop it. Crypto is not dead, it's simply an asset class that is prone to a fair amount of volatility.

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Cryptocurrencies have gained notoriety in recent years as an asset class that offers portfolio diversification benefits and potentially significant returns. However, it is very volatile and so has the potential for substantial losses, too. As a result, the asset's volatility is simultaneously its most significant disadvantage as well as its biggest advantage.

Additionally, some may be put off due to a lack of knowledge about investing in crypto. Where do you buy Bitcoin from? How do you purchase an Ethereum token? Until recently, the answer to those questions was not necessarily as simple as answering how to buy stocks and shares. But, now, it is possible to purchase cryptocurrency through PayPal, making it a far more accessible notion.

How does investing in cryptocurrency via PayPal work?

Firstly, it's essential to know that PayPal only provides access to four cryptocurrencies, not all of them. However, those four are some of the biggest cryptocurrencies - Bitcoin, Ethereum, Litecoin and Bitcoin Cash.

To start buying crypto with PayPal, you must have a PayPal account. From there, you can manage your buys and sells of your chosen cryptocurrency through the app. Between buying and selling all or some of your crypto assets, you can hold them and keep an eye on market movements in price. The app's buying and selling procedure is highly intuitive and easy to follow.

However, while the notion of buying, selling and holding cryptocurrency through PayPal is not complicated, there are some essential points to grasp before you start trading. Firstly, buying through PayPal does not give you the rights to the actual asset. The reason for this is that PayPal is the entity that looks after the wallets that hold cryptocurrencies. You, yourself, never actually own them. To own them, you need to have two pieces of information: the public key and the private key.

The public key is your wallet - the one held by PayPal. To take control of it, you need the private key. PayPal never gives you the private key and instead keeps it. For that reason, you can never spend or transfer your cryptocurrency holdings off PayPal’s platform. You can sell them for a state-backed currency, which you can then transfer to your bank account, but you can never actually transfer the cryptocurrency asset.

For that reason, buying cryptocurrency through PayPal has been likened to the notion of derivative trading. Derivative trading is based on the premise that you never actually own the underlying asset, but you do profit from it when it goes up in price or, conversely, lose money when it goes down in price. Plus, as many cryptocurrencies now have a high price point for a single token, buying just a tiny fraction of one is a big draw for people who want exposure to the crypto market.

Finally, the app does provide a good deal of information on cryptocurrency and investing. For example, PayPal has several articles in a library that is available through your account. These articles can help you keep abreast of any developments in the cryptocurrency world and let you learn some of the technicalities. It is still a relatively new asset class, so many of us may still need education on what it truly entails.

Is buying crypto through PayPal a good idea?

All of the above may sound, in practice, like something that you are happy to try out. Investing in cryptocurrency may be a strategy you have wanted to follow to help diversify your portfolio. Crypto has been seen to have a lower correlation to other assets. This means that when you purchase cryptocurrency, it will not be as reactive to certain market shocks as stocks and shares may well be. Government policy is an excellent example of this. As cryptocurrency is a decentralised asset, it is not as sensitive to changes in regulation in a way that stocks or other currencies may be.

Plus, not holding the actual asset can be a good thing. You may not want to store your cryptocurrency details, which give you the right to a token. Perhaps there is something in human nature that makes us a little uncomfortable paying money for something that we never actually legally own in its entirety. If you are comfortable with that concept, buying cryptocurrency through PayPal could be a good option.

Plus, there is no denying that one of PayPal’s crypto offering advantages is just how quick and easy it is. Using PayPal to buy crypto will likely mean you do not have to go through a painful account opening process, which you do with some other platforms. Additionally, PayPal's interface is one that a massive amount of people already know. If you are one of them, that is an enormous advantage, as you won't get bogged down using an interface that you do not find intuitive. That's incredibly important when buying an asset that has some inherent complications in it.

However, you may find that buying and selling crypto through PayPal has one considerable drawback. PayPal itself is subject to the laws of the countries within which it operates and is a slightly more conservative tech company than some of its peers. As a result, buying cryptocurrency with them thus incurs a loss of autonomy. Autonomy, being decentralised and not beholden to regulation, is undoubtedly one of the most significant crypto attributes for many investors. You may want to be investing in an asset that is outside of the reach of Governments. By buying through PayPal, you are diminishing that.

Lack of autonomy is incredibly crucial. For example, what would happen if PayPal changed its approach suddenly to how it allows users to buy and sell crypto? If you hold crypto through the platform, you are at the behest of whatever those new rules are. Those new rules may not be massive game changers - perhaps a tiny increase in selling fees - but the company can move the goalposts at any given moment.

Of course, it could change the goalposts for the better. Currently, it does not allow customers to transfer crypto off the platform. With some other platforms, like Revolut, allowing customers to withdraw from their accounts, PayPal will likely have to do the same to remain competitive. And that would be yet one more significant advantage to buying crypto through PayPal. Not only does it simplify the process of buying cryptocurrency, but it also lets them hold the underlying asset.

How else can you invest in cryptocurrency?

If the drawbacks to investing in cryptocurrency with PayPal add up to too much of a disadvantage for you, there are other ways for you to invest in this asset class. For starters, if you want definitive ownership of a cryptocurrency token, you will need to sign up to a cryptocurrency exchange or a trading platform that allows you to purchase the asset you want. To buy and hold crypto, you must be given the private and public keys. You must then keep a record of that information - without both parts, you can be at risk of losing your entire investment amount.

Secondly, you could sell another asset and take payment in the form of a cryptocurrency. But, again, for that transaction to be legitimate with you holding the cryptocurrency in the end, you need both the private and public keys.

Finally, you can try mining for cryptocurrency. A significant advantage to this is that you do not have to pay any money to take ownership of a crypto token like Bitcoin - in theory. However, the fact is that mining for cryptocurrency is so technically complex that it requires hugely sophisticated computers to mine - and lots of them. That adds up to an investment in itself, and it could, in fact, be more costly to try to mine for a crypto token than it is to simply buy one on an exchange.

Investing in cryptocurrency via PayPal

As with any investment, you have to determine whether it is the right choice for you by comparing the pros and cons to your own individual circumstances. When it comes to investing for retirement, cryptocurrency could offer you the opportunity to make up any shortfalls in a pension pot as it can provide some significant returns. The problem is, it can also be prone to some significant losses, so it is up to you to decide whether that is a risk worth taking.

And, whether you think that is a risk worth taking by investing in it through PayPal is yet another choice you have to conclude with regards to your situation. You may not like the idea of investing through PayPal because it takes away one of crypto's most significant advantages - its decentralised nature. But that could also make you more inclined to invest in it, especially when using a platform that you already know how to use.

Rachel Lee
Rachel Lee
Rachel joined Age Group in 2020 having worked at Morgan Stanley and BNYMellon for over 10 years in pensions and investments. During her previous career, Rachel naturally started to move towards investment writing more and more in her day job. Rachel now works as a full-time finance writer drawing from her hands-on experience in the field.
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