Paypal launches UK cryptocurrency trading service – how does it work and what are the risks?
YOU can now trade cryptocurrencies like Bitcoin and Ethereum using PayPal.
The payments platform has launched the new service for buying and selling cryptocurencies in the UK for the first time.
Paypal first started offering crypto trading in the US last year and there has been a surge in interest in investing in digital currencies since then.
It's estimated that 2.3million Brits now hold crypto asssets, but cryptocurrencies are highly volatile, meaning the price can fall and rise by a large amount and in a short space of time.
The UK's financial regulator has warned that investors risk losing all of their money if they put it in cryptocurrencies.
Cryptocurrencies are unregulated and you don't have the same protections as you do with money held with a bank or other financial institution.
You could be charged higher fees too compared to financial products which are regulated, and there's also no guarantee that you'll be able to convert your crypto holding back into cash.
In short, you should only ever put your money into something you understand and that you can afford to lose.
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Myron Jobson, personal finance campaigner at interactive investor said that cryptocurrrencies have started to become a "credible alternative" to mainstream investments and that Paypal's service could "inspire greater adoption" but is still risky.
He said: "The presence of such a strong and renowned global brand gives greater legitimacy to cryptocurrencies which are wrought by a level of volatility that is simply too extreme for the average investor to stomach.
"Cryptoassets are and remain high-risk options – regardless of what platform is used to trade them - because of how much and how quickly its value can change unexpectedly."
Here we explain how you can buy and sell cryptocurrenciess on Paypal and the risks involved.
How does Paypal's cryptocurrency trading work?
You can buy cryptocurrencies on Paypal using your Paypal account if you already have one.
If you don't have one you'll need to set one up - it's free and you can use it to send cash and spend money on websites too.
You can buy and sell crypto through the app or online via the Paypal website.
There will be a new tab labeled "crypto" where you can see the price the coins are currentlt trading at.
You will also have the option to buy them and you will pay using the bank account or credit card that's connected to your Paypal account.
If you sell any coins the money will go into your Paypal account.
You will need to have verified your identity to buy and sell crypto on Paypal.
The new feature is being rolled out this week so if you don't see it yet, check back.
What crypto coins can I trade on Paypal?
You can buy, sell and hold four cryptocurrencies on Paypal in the UK:
- Bitcoin
- Bitcoin Cash
- Ethereum
- Litecoin
All four coins are among the most popular cryptocurrencies in the world, according to CoinMarketCap.
Bitcoin and and Ethereum are the the first and second largest cryptocurrencies in terms of market capitailsation, which is the total value of supply in circulation.
They are also among the most well established cryptocurrencies.
Other cryptocurrency trading platforms offer buying and selling of hundreds of coins in some case, but many are new, untested and come with even greater risks.
How much does it cost and are there fees?
The cost of buying cryptocurrencies depends on how much the coin you want to buy is worth at the time you buy it.
For instance, one Bitcoin is worth $50,226 at the time of writing but you can buy as little as $1 worth of the coin on Paypal.
Paypal does not charge a fee for holding cryptocurrencies in your account.
But you will be charged fees for buying and selling them, including a transaction fee and currency conversion fee.
The transaction fees range from 50 pence to 2.3% of the transaction and depend on how much you buy or sell.
- Between £1 and £24.99 - 50p
- Between £25 and £100 - 2.3%
- Between £100.01 and £200 - 2%
- Between £200.01 and £1,000 - 1.8%
- Over £1,000 - 1.5%
Fees are usually charged based on a percentage of the transaction so the exact amount it costs depends on how much you are buying or selling.
Different platforms charge different fees so it's worth comparing and considering the cost when choosing a platform to trade on, along with security and withdrawal policies.
For instance fees for trading on Gemini start from 75p and go up to 1.49%, depending on the size of the transactions, while Ziglu charges 1.25% and Fibermode 0.99%.
Paypal said that both the transaction fee and exchange rate are shown when you are buying or selling.
The exchange rate may include a margin that PayPal earns each time you buy and sell and the conversion between your electronic money in pounds sterling and the relevant cryptocurrency which is purchased in US dollars.
The platform also notes that you can be charged by your own bank if the account or card is linked to Paypal, including if you are overdrawn
If you use a linked bank account or debit card as a funding source to buy cryptocurrencies, your bank may charge you its own fees, including overdraft fees or insufficient fund fees, if applicable.
What are the risks?
Investing in cryptocurrencies is a risky business and you could lose all your money.
Paypal itelf warns that your capital is at risk and that "the value of cryptocurrency can rise or fall suddenly so you can lose money
just as easily as you can make it".
The company adds: "We recommend doing your research and consider the risks before buying, holding and selling."
Paypal is offering educational articles to users to help them understand crypto and investing.
You should never invest in something you don't understand, or money that you can't afford to lose.
Mr Jobson warned that investors - especially young people - should remain cautious.
He said: "There is an overwhelming amount of evidence to suggest that cryptocurrencies appear to have struck a chord with young people.
"Research published by the city watchdog earlier in the year found that the ‘thrill of investing’ is driving younger people to leap into crypto - even though most are unable to absorb big losses.
"The worry is that the new generation of investors, who didn’t witness the dotcom boom and crash at the turn of the millennia or remember the financial crisis of 2007/08, are participating in the latest market craze without truly assessing the risks.
"Whatever your approach to risk, cryptocurrency should only be a tiny proportion of a portfolio, and the merits of a diversified investment portfolio and avoiding trying to market-time should not be forgotten."
Paypal is a legitimate company that is a publicly traded, meaning it's shares are listed on a stock exchange.
It is regulated in the UK with the Financial Conduct Authority (FCA) for certain activities like holding money on behalf of customers and lending money.
Paypal is not registered in the UK as a cryptoasset firm.
Firms that are comply with the FCA's rules to combat money laundering - but this doesn't give you any extra protections for users and cryptocurrencies are unregulated.
You can't use the Financial Ombudsman Service to complain or the Financial Services Compensation Scheme if a platform goes bust.
The FCA also has the power to limit cryptocurrency trading platforms in the UK.
In May it told Binance that it was not allowed to "carry out regualted activities, with immeidate effect" and in July it suspended UK withdrawals leaving investors unable to access their cash.
Paypal crypto boss Jose Fernandez da Ponte said that the company is "working closely with regulators" in the UK and elsewhere in the world.
He said: "Our global reach, digital payments expertise, and knowledge of consumer and businesses, combined with rigorous security and compliance controls provides us the unique opportunity, and the responsibility, to help people in the UK to explore cryptocurrency."
Paypal has previously said that it plans to let people pay using bitcoin.
Mr Fernandez da Ponte said: "We would like to learn and observe how our customers in the UK use our buy, hold and sell crypto offering before we would start to roll out more features and functionality."
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He said the company is "moving with discipline to build out our crypto capabilities and service" and it is a growing area of focus, with "incredible and sustained engagement" from users in the US where it launched last October.
Amazon could start accepting Bitcoin as payments this year, according to insiders at the shopping giant.
What is cryptocurrency?
CRYPTOCURRENCIES are a form of payment that can be exchanged for goods and services.
They work using a technology called blockchain.
Blockchain is a decentralised technology spread across computers that manages and records transactions. Find out more about cryptocurrencies below..
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- What is Ethereum?
- What is Cardano?
- What is Litecoin?
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