In today’s Exponential Investor:

  • A funny coincidence
  • Steps to get bitcoin on PayPal
  • PayPal vs. Coinbase

A funny coincidence happened on Friday.

A reader emailed (edited for brevity) saying,

Once PayPal allows the buying/selling of crypto in the UK, it would be great if you could put out a guide … With PayPal, it sounds like I could buy and sell crypto (just as a speculative investment) without needing [wallets or access codes]. Is this correct? 

That’s not all that funny.

However…

As I received the email question, I had just logged off my PayPal account.

Not only that, but the reason I was in my PayPal account to start with was to buy some crypto, specifically bitcoin.

You see at 7am on Friday, PayPal UK released a tweet:

Source: PayPal UK on Twitter

I caught the tweet at about 9.30am and decided to test it out.

I was curious. This is a pretty big deal. PayPal is a global giant of financial services. The company offers everything from payments to credit… and now crypto.

PayPal claims that over 20 million shoppers use PayPal in the UK every year.

In the blink of an eye, millions of people in the UK can now very easily buy (and sell) bitcoin, Ethereum, Bitcoin Cash and Litecoin from their PayPal accounts.

This isn’t something coming down the track. This isn’t fake news. This is real, and it’s available now.

I know, because I’ve done it. And I’m going to explain to you what I did and how I did it.

Easy steps to get bitcoin

First things first, if you want to get crypto using PayPal, you need a PayPal account.

Once that’s done, things get pretty easy from there.

You will of course also need a linked bank account/debit card in your PayPal account.

Then what you need to do is jump into your PayPal account.

The good news is that in the menu bar at the top of your account you’ll see this:

Source: screenshot from Sam’s PayPal account

Right there in the middle is “Crypto”.

That wasn’t there a day ago. It is now.

Clicking on that menu option takes you to the crypto page.

It shows you the crypto PayPal has available to buy: bitcoin, Ethereum, Bitcoin Cash and Litecoin.

PayPal also has some interesting “Learn more about crypto” resources down the side of the page. It’s worth checking out if you have the time.

If you want to buy some of the crypto, you just click on the one you want.

In my case, I wanted to buy bitcoin, so I clicked and it took me to the buy and sell page:

Source: screenshot from Sam’s PayPal account

When you click “Buy”, a pop-up window appears asking how much in GBP you want to buy.

It has default options of £20, £50, £100 and £500. Or you can enter any amount you like over £1.

It also has a link to the “Rates and fees” that PayPal charges on the purchases.

When you have entered the amount you want, it then asks for a funding source. This will be one of the funding sources you’ve added, or it gives you the option to add a funding source.

Then it takes you to a “Review and buy” pop-up, showing you a review of the transaction before you make that final decision.

Now I will also add that if you’re buying for the first time PayPal needs to make a few clarifications before letting you off the leash.

The first is clarification you’re not a United States tax resident. I sort of understand why PayPal is doing that. But at the same time I do find it a bit weird. Nonetheless, I’m not a United States tax resident, so that was easy to complete.

The next pop-up is interesting. It goes through all the risks PayPal determines to be factors in your crypto-purchasing journey.

Source: screenshot from Sam’s PayPal account

These are all legitimate considerations and the crypto market is high-risk and unregulated. So it’s nice they make you agree to this before buying.

However, the key aspect there is the part that reads, “You can buy, sell and hold cryptocurrency on PayPal, but you can’t use it to send money.”

This means once you buy your crypto through PayPal, it stays there. You can’t send it off PayPal’s platform (at least you can’t for now) to another wallet you control the keys to.

This is something that I don’t like about the whole process.

My view is always that you should control the private keys to your crypto wallets. You should store them in a wallet only you have access to and control. That way you’re not at the mercy of third-party risk, which you are with companies like PayPal.

If PayPal decides to block you from selling your crypto or block you from accessing your PayPal account, your crypto is stuck in there. If they’re hacked, or compromised in some way, you’re reliant on its systems and security to keep your funds safe.

This is a sticking point for me, and it means that I wouldn’t use PayPal to get crypto and keep it long term.

Unless I have full access and control of my crypto purchases, I’m not interested in holding it through PayPal. Except where I’m doing it to explain to you how it can be done, not that it should be done through PayPal.

That said, some people don’t want to deal with their own security and responsibility for buying and holding and transacting in crypto.

Some people just want to buy it and sell it as a speculative asset and not worry about wallets, private keys, transactions or any of that. And they’re comfortable that a giant global organisation like PayPal provides those services for both buying and selling and custody.

With that in mind…

Once you’ve agreed to the risks, and you review your purchase, you click “Agree and buy”.

Source: screenshot from Sam’s PayPal account

That’s all you need to do.

Now I bought £20 worth to check out the whole process. I’ll keep it there and probably never sell it. Or at least keep it there until they allow for off-platform transfers out.

But what I really wanted to know was how does buying through PayPal compare to others? How much bitcoin do I actually get for my money with PayPal or a competitor like Coinbase?

PayPal vs. Coinbase: who would I pick?

There are a couple of things to consider here.

Companies like these make money on transaction fees and the buy/sell spreads (the difference between the actual spot price and the price they offer it for sale). You pay more on PayPal at the spot price rate than you do on some crypto exchanges.

But a more “like for like” comparison would be to an exchange like Coinbase that allows GBP to bitcoin (and other crypto) purchases.

So I compared both at the exact same time.

As you see above, with PayPal I got 0.00057113 BTC. Another way of saying this is that I got 57,113 satoshi (a satoshi (sat) is the smallest denomination of bitcoin, 0.00000001 BTC).

At the exact same time I did a purchase of £20 of bitcoin on Coinbase.

Source: screenshot from Sam’s Coinbase account

You’ll see slightly different approaches here. For a start, PayPal charged me £20.50. It added the charge on to my purchase so I was still getting a “pure” £20 worth of bitcoin.

Coinbase extracts the fees from the purchase, so I spend £20 but actually only get £18.51 of bitcoin.

Even still, compared to Coinbase, PayPal is markedly cheaper.

A 50p charge for my buy as opposed to a £1.49 charge.

That’s a big gap for small purchases. You can also see it in the amount of bitcoin I end up with.

57,113 sats with PayPal vs. 53,036 sats with Coinbase. I’m getting more bitcoin buying through PayPal.

But don’t forget, the tradeoff here is that with Coinbase I can do anything I want with my bitcoin, then I can leave it there. I can convert it or trade it for a huge number of other crypto quickly and easily. I can send it off Coinbase to a wallet in control and have the private keys too.

I can’t do that with PayPal at all.

That’s the tradeoff. And it’s too big a tradeoff for me. It means if I had to pick between Coinbase or PayPal, I’d pick Coinbase.

Nonetheless, as I say, loads of people have PayPal accounts. Many people will happily accept the issues I’ve outlined here today. And many people will want to know how to buy crypto within their PayPal accounts.

It is easy. It is intuitive. It is quite good to be fair.

But remember, a saying in crypto is “not your keys, not your crypto”. That applies here. There are still risks PayPal outlines, and ones it doesn’t which I have today.

Your call as to what you do, but at least now, you know.

Until next time…

Sam Volkering
Editor, Exponential Investor