PayPal is Letting Users Withdraw Crypto. Here’s Why That’s Extremely Bullish for Bitcoin

However, with PayPal finally in the process of offering withdrawals, exchanges now have some serious competition on their hands. Given PayPal’s ubiquity and sheer ease-of-use, exchanges will have to work very hard to make themselves attractive to newcomers to crypto. Ultimately, this can only be a win for bitcoin and crypto in general, while PayPal’s encouragement to withdraw to a wallet may help foster long-term holding behavior among retail investors.

PayPal Informally Announces Crypto Withdrawals

To cut a long story short, PayPal isn’t saying when this feature will be arriving, but it’s definitely coming.

“We want to make it as open as possible, and we want to give choice to our consumers, something that will let them pay in any way they want to pay. They want to bring their crypto to us so they can use it in commerce, and we want them to be able to take the crypto they acquired with us and take it to the destination of their choice,” said da Ponte.

Why It Matters for the Crypto Industry and Bitcoin

This might seem like fairly minor news, but it’s actually a pretty big deal. And for various reasons.

From the perspective of the consumer, it will be a welcome rollout, giving PayPal users full control over their funds. Because as the old saying goes, ‘Not your keys, not your crypto,” meaning that if you can’t withdraw bitcoin to your own wallet, you effectively don’t own it, and arguably possess little more than an IOU for the dollar value of any bitcoin credited to your name.

By being able to withdraw bitcoin, ethereum, litecoin or bitcoin cash, PayPal users will also be protected in the (admittedly unlikely) event that PayPal should ever suffer some kind of hack or collapse. With their bitcoin safely in their own Ledger or Trezor, users won’t be affected if PayPal goes bust, suffers a bitcoin theft, or falls afoul of some regulatory action for selling ‘unlicensed securities,’ for instance. PayPal has actually suffered from vulnerabilities in recent memory, so this isn’t only a theoretical possibility, but something that could potentially happen.

More broadly, the news is bullish for the cryptocurrency industry as a whole. With PayPal now on the cusp of becoming very much like a fully fledged crypto exchange (insofar as it will offer buying/selling and withdrawals), its move could encourage more retail traders to dip their toes into the cryptocurrency market for the very first time. At the same time, now that PayPal will be functionally equivalent to many of the big exchanges, it will force these exchanges to really up their game, assuming they want to continue to attract new retail investors.

In the past, this author has been told by numerous cryptocurrency analysts and experts that fintech apps such as PayPal and Robinhood should be avoided by retail investors, who would be better off signing up with exchanges that actually permit withdrawals. Such misgivings have potentially helped exchanges attract new customers at the expense of PayPal, but with PayPal finally listening to such criticism, exchanges can no longer rest on their laurels.

Now, just as PayPal has added possibly the best feature of crypto exchanges, crypto exchange will need to add PayPal’s best features to compete. This includes not only PayPal’s simplicity and user-friendliness, but also its high level of compliance with regulations and legislation.

Source: Twitter

In other words, exchanges will have to significantly up their games to continue attracting new retail customers. In the long run, this will help to improve crypto’s image, since even now it has a reputation for being user-unfriendly and for exchanges being a breeding ground for illegality.

Source: Twitter

By having a growing number of platforms such as PayPal that offer crypto services while also playing scrupulously by the rules, regulators in the United States and elsewhere may also become more willing to clamp down on less scrupulous platforms or more willing to introduce stricter crypto regulation.

They will no longer fear ‘inhibiting’ the growth of crypto by potentially restricting the big exchanges (since there will remain a number of more compliant services), and while this might end up impinging on some of the more colorful crypto activities (e.g. derivatives, leverage), it will again clean up crypto’s reputation over the longer term.

Holding

And in terms of bitcoin’s price and value, PayPal’s impending move could be considerably bullish. By letting users withdraw their crypto to an external wallet, it may help nurture long-term holding behavior, reducing short-term panic selling that can often inject the market with excess volatility.

Much of the recent dip in the market was apparently caused by retail investors who’d only recently bought their bitcoin and other cryptocurrencies.

Source: Twitter

Basically, by giving users a means of keeping bitcoin on an external wallet, Paypal may help reduce the kind of short-term mentality that contributed to the steep decline we’ve witnessed in the past few weeks. Analysts generally regard crypto held on exchanges as an indicator of imminent selling (and the opposite as bullish), and with PayPal — which counts nearly 400 million users worldwide — helping to reduce this figure, we may see a long-term decline in selling.

Of course, such effects will likely require several years to be distinctly noticeable, not least when PayPal’s crypto services aren’t available everywhere in the world (although more areas, such as the UK, will be included later in 2021). But when they do take effect, the impact could be pretty substantial. Crypto will receive further legitimization, and retail investors will be encouraged to engage in more long-term investment behavior.