Baby Steps or Handcuffs? Crypto Pros Assess PayPal's Bitcoin Play

Fintech giant PayPal confirmed its long-awaited move into digital assets Wednesday, offering its 346 million users the chance to buy, hold and sell bitcoin, bitcoin cash, ether and litecoin, with the blessing of New York state regulators.

While the cryptosphere acknowledges the bullishness of a firm the size of PayPal making a move into the space, there was also concern that the new service does not allow bitcoin or other cryptocurrencies to be withdrawn or deposited.

"Currently, you can only hold the cryptocurrencies that you buy on PayPal in your account. Additionally, the crypto in your account cannot be transferred to other accounts on or off Paypal," states the PayPal FAQ page published with Wednesday's announcement.

The view from some informed takes is that while PayPal did not need to impose such restrictions, it's probably a case of taking things by degree; a "Crawl before you can walk" approach.

The lack of withdrawals to self-custody and inability to transfer between accounts constituted "The highlight of the PayPal news" for Jake Chervinsky, general counsel of DeFi platform Compound, who added that such restrictions aren't required for regulatory compliance.

It may well be the case that PayPal is simply setting out to cater to what it perceives to be the needs of the average user, pointed out Jerry Brito, executive director of Coin Center, a Washington, D.C.-based think tank.

Providing the most obvious route for people to have exposure to the asset class without necessarily getting into the more complex issues of running private keys and understanding cryptography and digital signatures is possibly what PayPal is thinking, said Charles Hayter, CEO and co-founder of data site CryptoCompare.

Brito of Coin Center agreed that to be compliant with regulations, PayPal did not perhaps need to wall its garden in, but pointed to gray areas like the Financial Action Task Force's Travel Rule and other areas of anti-money laundering enforcement, which come into play when transferring crypto in a regulated environment.

Stephen Palley, a partner at the Anderson Kill law firm, said the functionality of the PayPal crypto announcement is not important compared to what it says about crypto, the asset class.

"My takeaway is that the importance is not the functionality. The importance is from the normalization of the asset class. If PayPal is saying you can somehow use this via our platform, however it works, that takes it one step away from the notion that this is just for criminals."