The Case for Bitcoin
Before we dive into how to buy Bitcoin, let us talk about why it is a good idea. To give you some ammunition, here are some reasons why buying Bitcoin could be a sound investment decision.
Bitcoin is a scarce asset, offering superior inflation protection
Throughout 2020, the narrative of Bitcoin as "digital gold" gained traction. Like gold, Bitcoin is a scarce asset as 21 million coins will ever be created. In fact, around 88% of the 21 million has already been mined. Current inflation of the Bitcoin network is 1.8%, below 2.5% for gold, and will decline over time. Unlike gold, however, Bitcoin has many properties commonly associated with money. It is durable, verifiable, fungible, storable and divisible.
In today's environment of seemingly unlimited monetary and fiscal stimulus, Bitcoin's monetary policy offers an effective hedge against inflation. To give you some sense of the scale, in 2020 the Federal Reserve printed 22% of all extant U.S. dollars. As more and more money is printed, the purchasing power of the USD declines – it was down by 1% in 2020 alone.
(Source: U.S. Bureau of Labor Statistics)
Bitcoin as digital gold is the narrative supported by many high-profile Wall Street investors, like Bill Miller, Stan Druckenmiller and Paul Tudor Jones. And, just recently, chief investment officer of fixed income at BlackRock suggested that Bitcoin has the potential to "replace gold to a large extent."
Institutional investors and corporate treasuries are just beginning to move in
While many institutional investors entered the space during 2020, it's still early. At close to $600 billion in market capitalisation, cryptocurrencies represent an insignificant share of the investment universe. Gold, for example, has an estimated market cap of around $9 trillion. Global equity market cap was $95 trillion at the end of 2019, and the total value of global bonds outstanding was around $106 trillion.
As an investment, Bitcoin makes a lot of sense in a traditional portfolio. Research by blockchain analytics firm, Messari, shows that Bitcoin offers one of the best risk-adjusted returns in the world, exhibits low correlation with tradition assets in up and down markets and is extremely liquid. Investment performance over the recent years speaks for itself.
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Total | |
| Bitcoin | (2%) | 172% | 1,265% | (72%) | 89% | 85% | 1,538% |
| Equity Long-Short | 1% | 2% | 12% | (6%) | 13% | (0%) | 22% |
| Macro ex-CTAs | (0%) | 3% | 2% | (1%) | 5% | 5% | 15% |
| CTAs | 0% | (3%) | 3% | (6%) | 9% | (1%) | 2% |
| Balanced Mutual Funds | (1%) | 8% | 14% | (5%) | 20% | 5% | 42% |
| Investors Average | 0% | 3% | 8% | (5%) | 12% | 2% | 20% |
| MSCI AC World | (2%) | 8% | 24% | (9%) | 27% | 5% | 52% |
| Barclays Global Agg | 1% | 4% | 3% | 2% | 8% | 5% | 23% |
| 60 Equity: 40 Bonds | (0%) | 8% | 16% | (2%) | 22% | 7% | 51% |
| Benchmark Average | 0% | 7% | 14% | (3%) | 19% | 6% | 42% |
(Sources: Messari INC., Bloomberg, TradingView, HFR, HG CTA Index, JP Morgan)
In addition to traditional institutional investors, corporate treasuries are starting to enter the space. MicroStrategy and Square are just a couple of examples, allocating $425 million and $50 million to Bitcoin, respectively. Near-zero interest rates on cash balances and the tendency of fiat currency to lose purchasing power, make holding cash detrimental to shareholder value.
There are plenty of other arguments that support a Bitcoin investment thesis. For example, many consider its resistance to censorship to be a valuable characteristic. While others expect Bitcoin to benefit from the upcoming generational wealth transfer, as millennials and Gen Z are in line to inherit nearly $78 trillion of wealth.
Now that I covered some reasons you might want to own Bitcoin, let us look at how to buy Bitcoin with PayPal.
How to Buy Bitcoin with PayPal
On November 12th, 2020, PayPal announced that eligible users in the U.S. could now invest directly in cryptocurrencies through the app. If you are in the U.S., you can now buy, sell, and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash through PayPal. Unfortunately, you are not able to transfer crypto to other accounts on or off PayPal. In 2021, PayPal was expected to enable cryptocurrencies to be used as a funding source for purchases, improving their utility.
These are the steps required to buy Bitcoin with PayPal.
Step 1
If you do not have a PayPal account, you need to set one up. You will need a credit card or a bank account and your email address.
Step 2
The experience of buying crypto with PayPal is similar in both the app and the web interface. Head over to the cryptocurrency section on the home screen (or "payments" in the app), where you can choose which coin to buy.
Step 3
To move forward with your purchase, PayPal will ask you to confirm some information and agree to their Cryptocurrency Terms and Conditions. The minimum amount of Bitcoin you can purchase is $1, while the maximum is $20,000 per week and per a single transaction.
Step 4
Choose how much Bitcoin you want to buy, select the payment method (card or bank account) and click "Buy Now"!
Great, you are now a proud owner of Bitcoin or another major cryptocurrency of your choice. It is worth repeating that PayPal currently does not let you transfer your crypto to other wallets on or off PayPal. Another important consideration is the fee. PayPal intended to begin applying transaction fees in 2021. Starting in 2021, however, PayPal begins to charge fees through pocketing the spread between the actual market price and the price quoted to the users. The company said that it "will not separately calculate or disclose the spread we earn on each transaction."
Other Ways to Buy Bitcoin with PayPal
There are several other options to buy Bitcoin using PayPal. The best one is through eToro, a fintech brokerage company. Most other platforms that let you buy Bitcoin using PayPal are peer-to-peer sites, like LocalBitcoins.com, Paxful or xCoins. Buying Bitcoin through a peer-to-peer site has its disadvantages, including security, inflated prices, and high fees. Let us briefly examine them.
Taking eToro first, it is not a crypto-focused company, per se. Instead, it is a relatively traditional trading and brokerage business outside the U.S.A. It introduced crypto trading using contracts for difference (CFDs) in 2013. Excepting buying Bitcoin directly via PayPal, eToro is the easiest and cheapest option.
To buy Bitcoin with eToro, you will need to register for an account and verify your identity. From there, it is simply a matter of depositing funds into your account and choosing PayPal as your preferred method. Once funds are deposited, you are good to go.
Other tried and tested alternatives are LocalBitcoins and Paxful.
LocalBitcoins is a peer-to-peer Bitcoin trading site, founded in 2012. Buying Bitcoin with PayPal on LocalBitcoins is relatively straight-forward. You can easily search by payment method, PayPal in our case.
A search for PayPal returns all available offers.
It is important to assess the seller and consider whether they are trustworthy. You should check their feedback score, number of confirmed trades, trust rating and whether anyone has blocked this seller. These metrics should give you an indication of who you are dealing with and are readily available under the seller's profile.
To complete a transaction, pay attention to the terms of trade for the specific seller as they will differ from one seller to the other.
Paxful operated similarly to LocalBitcoins in many ways. Started in 2015, it is one of the largest peer-to-peer bitcoin marketplaces in the world. Using Paxful offers better user experience and, according to the company, there are over 300 ways to buy and sell cryptocurrency on Paxful.
You can instantly search for offers to buy Bitcoin with PayPal.
You can also use Paxful's helpful filters to narrow down search results according to your specifications. From here, you can pick and choose your preferred seller or just let Paxful recommend one. You can review a range of stats on each seller, their positive and negative feedback, number of trade partners and total trades executed, how many people trust the seller and how many blocked him or her. Once you settle on your preferred seller and initiate a transaction, you will be directed to an online chat. The Bitcoin will be sent from the seller's account into escrow and released to you once the payment has been confirmed. You have a limited amount of time to finalise the deal; otherwise, it will be cancelled.
Just like LocalBitcoins, buying Bitcoin through Paxful is easy and can be done almost anywhere in the world. However, fees are an issue, and you will likely overpay for your Bitcoin.
Final Thoughts
Overall, there are many options for buying Bitcoin with PayPal. The best one is to go directly through PayPal or use eToro. Peer-to-peer services can also be used, but you should consider other options, if at all possible.
FAQs
Can I use PayPal to buy Bitcoin?
Yes, if you are based in the U.S. (except H.I.), you can buy, hold, and sell four cryptocurrencies on PayPal: Bitcoin, Litecoin, Ethereum and Bitcoin Cash.
Can I buy Bitcoin on Coinbase with PayPal?
No, Coinbase does not support crypto purchases using PayPal account. However, Coinbase customers can use PayPal to withdraw or sell cryptocurrencies, depending on the region.
Where can I buy Bitcoins with PayPal?
If you are in the U.S. (except H.I.), you can buy Bitcoin directly through PayPal. eToro is another option for using PayPal to purchase cryptocurrencies. Furthermore, many peer-to-peer platforms accept PayPal as a method of payment. These platforms include but are not limited to LocalBitcoins, Paxful and xCoins.
How can I buy bitcoins instantly?
There are many ways to buy Bitcoin. You can use fintech apps like Robinhood, CashApp, Revolut or eToro. You can also use a centralised exchange like Kraken, Coinbase or Binance to buy Bitcoin. Another option rarely discussed is Bitcoin ATMs. There are almost 12,500 Bitcoin ATMs around the world, some offering an easy way to purchase Bitcoin.