How to buy Bitcoin with PayPal: A step-by-step guide

Everyone in this world has heard of Bitcoin (BTC). PayPal's cryptocurrency services have introduced millions of its users to cryptocurrencies including Bitcoin. Specifically, nearly 350 million Paypal account holders now have an easy way to own the fastest growing asset class in history.

But, the crypto community has received this news of PayPal's new offering with mixed reactions, ranging from cautious optimism to outright attacks. This article examines why PayPal’s move has elicited such responses and explores the benefits as well as the more negative aspects of purchasing crypto on the PayPal platform. For users wondering, “Can I buy Bitcoin with PayPal?” This article shows how to do just that.

How to buy Bitcoin with PayPal directly

Here is how to buy crypto with PayPal. First, users have to log in to their PayPal account. Once logged in, they will need to have funds readily available. This may involve linking users' credit or debit cards or a bank account. 

Due to the strict requirements and regulations surrounding crypto, PayPal also requires that users undergo Know Your Customer (KYC) verification. KYC verification involves submitting documents that verify user identity like a driver’s license. Verification may involve submitting a copy of users' identity cards and proof of address. Interested users must also submit a W-9 tax form. 

As readers should be able to tell, the requirements for purchasing crypto via the PayPal platform are straightforward. As mentioned, however, exchanges require users to undergo similar procedures like submitting a driver’s license for identity verification to comply with KYC as well as Anti-Money Laundering (AML) measures. Doing so can come with added benefits such as lifting the maximum daily withdrawal limit.

Thus, interested PayPal users should do their due diligence and research exchange requirements. Comparing exchange requirements with PayPal's may prove prudent when investing.

Before users go ahead and start buying cryptocurrencies with their PayPal account, it’s prudent to look at both the positive aspects and downsides of purchasing Bitcoin on PayPal.

How to buy Bitcoin on crypto exchanges using PayPal

Centralized exchanges like Coinbase and Crypto.com allow users to use PayPal as a deposit method after KYC is completed, and the exchange is happy to proceed with the applicant's onboarding process.

To do so, link your PayPal account to the platform you want to choose. One can also stay up-to-date with the crypto news published regularly by Coinbase and enjoy other features offered by the exchange.

The upside of selling Bitcoin by PayPal

Introducing more than a quarter-billion users to cryptocurrencies definitely comes with upsides. The crypto community may be reluctant to admit it, but PayPal is providing a benefit to the industry by introducing a low-risk approach to crypto ownership.

Here is another way to look at it. Say a PayPal user purchases cryptocurrencies on the platform. Since they have now invested in it, this investment should prompt them to conduct further research online about their new asset and about cryptocurrencies in general. After all, it is natural to wish to understand what one owns. 

Therefore, sufficient further research down the crypto rabbit hole is inevitable. This hunger for knowledge should result in a desire for direct ownership over their own digital assets.

In fact, novice users who have been newly introduced to cryptocurrencies will benefit the most from this offering. This benefit applies mostly to people with low-risk tolerance. These users might find purchasing crypto on a trusted platform like PayPal to be a more friendly path to crypto “ownership.” PayPal is one of the most recognizable brands in online payment, and their adoption of crypto may be interpreted as a vote of confidence.

Bitcoin can take 10 minutes or longer to appear in a user’s actual wallet when transferring via the blockchain. What about the transfer of Bitcoin to PayPal? Instant. Moreover, PayPal incentivizes users further by partnering up with interested stores. Doing so allows PayPal users to make eligible purchases of products and services with their crypto holdings.

Regardless, many ardent crypto proponents in the community view this move as a sham to trick people out of direct ownership. Users may be best served by recalling the old crypto adage: Not your keys, not your coins.

Now that the positive aspects have been covered, the article presents popular arguments for why users shouldn’t use PayPal to buy Bitcoin and other cryptocurrencies.

Why you shouldn't buy Bitcoin with PayPal

When it comes to purchasing cryptocurrencies, users have a wide array of options like using a centralized exchange (CEX), a decentralized exchange (DEX), or a crypto wallet. But, everyday retail consumers might experience greater risk aversion because they don't understand the technology behind cryptocurrencies.

PayPal makes purchasing digital currencies easy. Buying Bitcoin with PayPal is a breeze for most users living in eligible countries. But, there are several crucial catches that users should be aware of before they choose to use the platform for their crypto purchases. 

PayPal crypto fees

PayPal is notorious for charging high fees. And the PayPal Bitcoin fees are no exception. Having said that, cryptocurrency exchanges are also infamous for charging exorbitant spreads. Spreads are the difference between the bid prices and the ask prices for a currency pair.

Users living in a country where they can deposit fiat directly into an exchange wallet can consider themselves lucky. Regulations allow them to buy cryptocurrencies and own their assets in their own wallet.

Buying cryptocurrencies from a crypto exchange and setting up digital wallets may prove cumbersome. Certainly, there is more work involved, and more education required. But with knowledge comes the realization that it's best for users to hold their crypto assets directly.

Users will recognize that not only do they have full and complete control over all their assets. This recognition comes with the potential to maximize returns. This potential is due to the many ways that DeFi offers passive-income opportunities, like staking to support a blockchain network and providing liquidity, or yield farming, to decentralized exchanges to help them run smoothly.

Users have to undergo a similar approval process with crypto exchanges

PayPal users who wish to buy cryptocurrencies via the platform must verify their identity. Verification includes providing necessary documents like passports for users to be able to buy crypto. 

But, major cryptocurrency exchanges also need their customers to undergo a similar approval process when they first sign up. Thus, users may fare better buying their crypto directly from an exchange, instead of from the PayPal platform.

 Users hold their fiat equivalent, not cryptocurrencies

Users never actually hold their crypto directly on PayPal. Bitcoin — and the other crypto coins being offered — are under the custodianship of the company. Therefore, PayPal users can only indirectly “own” their crypto. But, because users aren't allowed to transfer their crypto assets off the platform, technically, they don't own any digital currencies at all.

More experienced users will quickly find that they’re not able to send any of their Bitcoin to PayPal nor is it possible to swap currencies from inside the app. PayPal also does not provide its users with a digital wallet or even a wallet address. 

The lack of private keys means that PayPal account owners with cryptocurrency holdings on the platform are technically still holding fiat. When users cash out their crypto, the only type of liquidity available is fiat currency. Moreover, this means that users cannot transfer Bitcoin to PayPal. 

Why would PayPal offer crypto? This approach appears to be a self-serving scheme by PayPal to gain exposure to cryptocurrencies. PayPal achieves this aim by using its own customers' funds. Moreover, they gain publicity by promoting their acceptance of crypto, all the while minimizing their own risk.

Another criticism stems from the limitations that PayPal users are able to do with their crypto. For instance, not only can users not move the cryptocurrencies on their PayPal balance to their own wallets, but they can’t swap between cryptocurrencies inside the app itself. Technically, PayPal users aren’t holding any of the cryptocurrencies, PayPal is. 

 Users can't lend their crypto

Decentralized Finance uses smart contracts, which are self-executing algorithms that trigger once prespecified conditions have been met. Thus, smart contracts enable the elimination of third parties from financial transactions. 

One of the main appeals of DeFi is the ability to generate high yields. Because interest rates aren't controlled, they are instead free to be determined by the market. It is not uncommon to hear of double-digit yields for loaning out certain coins. 

Even Bitcoin can provide significant yields to lenders that would put banks to shame. PayPal does not give its users the ability to generate passive income on their crypto holdings. This inability is a significant drawback for crypto holders looking to maximize their returns. 

Selection is limited

Thousands of cryptocurrencies are in existence. Most of them are microcaps or small-cap coins — interested readers can learn more about market capitalization. Microcaps give investors their biggest gains since the upside potential for small market cap gems is massive. However, with greater upside potential comes greater risk, and microcaps offer the greatest risk of them all.

Risk aversion is why PayPal chooses to offer only four of the most popular cryptocurrencies: Bitcoin, Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTE). These coins represent some of the earliest cryptocurrencies in existence with Bitcoin and Ethereum leading the pack. Since these coins are better established, this means that they've matured. These four coins are thus less susceptible to volatile price movements.