PayPal Pledges to Bring Crypto to 26M Merchants, Confirming Market Entry

Crypto just got a shot at going mainstream in 2021. 

PayPal officially confirmed Wednesday it is entering the cryptocurrency market. The payments giant, with 346 million active accounts around the world, pledged to make cryptocurrency “a funding source for purchases at its 26 million merchants worldwide.”

What we know:

• PayPal said buy, sell and hold features would be live within the next few weeks but for some users, the features are already available.
• PayPal's service does not allow bitcoin or other cryptocurrencies to be withdrawn or deposited. Once you buy the coins, they stay in your account until you sell.
• Initially, the service supports bitcoin (BTC), either (ETH), bitcoin cash (BCH) and litecoin (LTC).
• This is a developing story; stay tuned for updates with full coverage below.

Bitcoin and other cryptocurrencies rallied following the announcement, which is one of several recent signs this year of mainstream corporate adoption of the decade-old technology, following Microstrategy’s $425 million deployment of its cash surplus into bitcoin and a similar but more modest move by Square.

CoinDesk first reported PayPal was planning a move into crypto in June, citing anonymous sources. A month later, CoinDesk reported the Paxos exchange had been selected to support PayPal in its crypto endeavors. 

In a blog post Wednesday, PayPal said the COVID-19 pandemic had driven the need for digital payments of all sorts, although the move had been in planning since at least late last year, and following PayPal’s short-lived dalliance with the Facebook-spawned Libra project.

Beginning in early 2021, PayPal customers will be able to instantly convert their selected cryptocurrency balance to fiat currency, with certainty of value and no incremental fees, PayPal said. Its merchants will have no additional integrations or fees, as all transactions will be settled with fiat currency at their current PayPal rates. 

“In effect, cryptocurrency simply becomes another funding source inside the PayPal digital wallet, adding enhanced utility to cryptocurrency holders, while addressing previous concerns surrounding volatility, cost and speed of cryptocurrency-based transactions,” PayPal said.

Not your keys...

As bullish for the bitcoin market as this announcement has proven to be, an initial review of PayPal’s crypto services terms underscores that a go-it-slow mindset still pervades. Critical caps limit who buyers are, how much they can buy and what they can actually do with their PayPal-sourced crypto.

For starters, PayPal is refusing to hand over customers’ keys.

“You own the Cryptocurrency you buy on PayPal but will not be provided with a private key,” PayPal wrote in a help post. PayPal casts the restriction as a loss-prevention tactic.

A customer losing their private keys makes his or her underlying crypto pretty much gone for good, the post points out. While users will not be liable for “unauthorized” crypto transactions on their account (think: hacks), PayPal appears to have no interest in mitigating sloppy private key management.

But keeping keys away from customers ensures that PayPal can maintain a tighter grip on how customers wield BTC, BCH, LTC and ETH.

Crucially, users will not be allowed to send their crypto around. 

“You can only hold the Cryptocurrency that you buy on PayPal in your account. Additionally, the Cryptocurrency in your account cannot be transferred to other accounts on or off PayPal,” the help page says. 

The service rollout also faces a series of real-world restrictions. Only 49 out of 50 U.S. states have coverage at launch, with Hawaii, a notoriously tricky state for crypto companies, excluded from the list.

“We plan to expand this service to select global markets in the first half of 2021,” PayPal said.

There’s also a $10,000 weekly buying cap and a $50,000 limit per 12-month period. All trades must be executed in U.S. dollars, PayPal said.

PayPal gets BitLicense

As part of Wednesday’s formalities, the New York State Department of Financial Services (DFS), said it had granted the first “conditional BitLicense” to PayPal for a partnership with Paxos Trust Company, enabling customers to buy and sell cryptocurrencies.

DFS said it was making good on a promise last year from Superintendent of Financial Services Linda A. Lacewell to take a fresh look at its regulatory framework for virtual currencies, with a view to fostering innovation in New York State.

“DFS’s approval today follows our June 2020 announcement for a new framework for a conditional Bitlicense to encourage, promote and assist interested institutions to have a well-regulated way to access the New York virtual currency marketplace in a way that is both timely and protective of New York consumers, through partnerships with New York authorized virtual currency firms,” said Lacewell in a statement.

“DFS will continue to encourage and support financial service providers to operate, grow, remain and expand in New York and work with innovators to enable them to  germinate and test their ideas, for a dynamic and forward-looking financial services sector, especially as we work to build New York back better in the midst of this pandemic,” she said.

Now, with the DFS’s approval, New York State-chartered Paxos will be able to provide trading and custodial services to PayPal to allow the fintech giant’s 346 million customers to buy, sell and hold cryptocurrency. Four DFS-approved digital assets will be initially available: bitcoin, bitcoin cash, ether and litecoin, according to the DFS statement. 

Since 2015, DFS has approved 26 entities to engage in virtual currency business in New York State, including PayPal. 

Read more: PayPal Picks Paxos to Supply Crypto for New Service, Sources Say

Update (Oct. 20, 15:08 UTC): Added details to introductory paragraphs and a section detailing the strict limitations on what PayPal users can do with their crypto.