By now, many of you will have heard the news that PayPal will be allowing 361 million of its customers to transact using cryptocurrency at the beginning of 2021. With the average PayPal user making just shy of 37 transactions per year, [1] it equates to… a lot of possible transactions. In fact, if cryptocurrency accounts for just 1% of PayPal’s total transactions, this would be ~133.6m transactions per year.

The move by PayPal will open up new avenues for those looking to spend their cryptocurrency to 26 million business merchants. This is big news because a limited ability to transact and spend your cryptocurrency has been a long-held criticism of crypto. CEO of hedge fund Bridgewater Ray Daio commented: “There’s two purposes of money, a medium of exchange and a store hold of wealth, and bitcoin is not effective in either of those cases now.” [2] With some critics saying that without ease of transfer and spend, it should not be considered a form of currency. As part of the initial move, PayPal will enable its users to purchase, sell and transact Bitcoin, Ethereum, Bitcoin Cash and Litecoin. So, what does this actually mean? Below we break down 3 key things for you to consider before taking the plunge with PayPal.

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1.   Get your investing hats on first: Customers will need to put their investing hats on and think about if transacting with certain cryptocurrency is worth the opportunity cost of appreciation. For example, the price of bitcoin as an asset has outperformed the ASX significantly since inception. In the last 12 months, a buy and hold approach to bitcoin would have returned 73.4% compared to the average return of the ASX200 over the same period of -5.35%. Customers would be wise to consider purchasing bitcoin outside of the PayPal ecosystem if they do intend to use it as an investment asset for the reasons we cover in the next insight.

2.      “Not your keys; not your coins” [3]: Though PayPal will enable its users to buy and sell cryptocurrency, and use it as a form of payment with merchants, PayPal will not provide customers with the private keys necessary to have true ownership over the cryptocurrency purchased. This means that should a PayPal user wish to send their coins to a friend or to a separate bank account, they will be unable to do so resulting in a much more closed loop ecosystem. In many ways this goes against the ethos of what cryptocurrency is all about, maintaining a decentralised method of holding and transferring money.

3.      Beware volatility: As somewhat as the antithesis of the first point, investors should also be mindful that purchasing bitcoin, or any cryptocurrency for that matter carries a certain level of risk. In fact, had you decided to buy bitcoin back at the peak in 2017 you would still be down close to 25%. Before committing to buying any cryptocurrency for the novelty of making a transaction with it, customers should consider if they will be content in the knowledge that their purchasing power could decline significantly in just a short period of time.

To conclude, the news announced by PayPal is fantastic for the community of cryptocurrency investors and users, representing a significant stamp of trust on the underlying technology and its ability from a major corporation. For PayPal customers this represents what I suspect will be the first foray into the world of cryptocurrency. We expect that the user interface will be easy and intuitive to use and less frightening when compared with the seemingly wild west world of different platforms, exchanges and wallet providers out there already.