The market value of cryptocurrencies has increased by $25 billion following news that PayPal will enable cryptocurrency payments, but ordinary users need to be aware of many warnings. The global payment provider PayPal has nearly 350 million users and 26 million suppliers on its network. As a result, the introduction of crypto payments is widely recognized as positive for the industry.
Within hours of the news, the cryptocurrency and bitcoin market rose to a new 2020 high of $13,200. Many industry experts hailed this move as a good thing for Bitcoin and the entire crypto ecosystem, but it doesn’t seem to be the case.
Activating decentralized digital assets on a highly centralized platform with astronomical fees may not be the best combination.
No Withdrawals, High Fees on PayPal
First, PayPal does not allow withdrawing crypto assets into external wallets. Therefore, once on the platform, PayPal can set the desired price for users who need to switch from crypto to fiat currency.
When someone uses PayPal to change the currency or transfer money to an account in another country, they will painfully realize that the currency spread can be up to 8% depending on the currency being converted.
Also, PayPal does not allow crypto transfers between different accounts.
Here Come the Taxes
When it comes to taxes, the whole setup can open up a lot of worms too. PayPal only offers crypto services for the US, and America happens to have some of the harshest tax regulations on the planet.
The Internal Revenue Service (IRS) classifies crypto assets like Bitcoin as property, not currency. Therefore, they are subject to capital gains tax. This means that the purchase, sale, or consumption of cryptocurrency by PayPal users generates taxable events that must be reported.
For example, if a user uses Bitcoin to purchase a smartphone, they must disclose the price at which they received Bitcoin and the price at which Bitcoin was sold and pay taxes on any income. All purchases are subject to VAT.
The documentation for reporting is a minefield. PayPal has already stated it is down to the individual, not them, to complete tax returns.
“It is your responsibility to determine what taxes if any, apply to transactions you make using your Cryptocurrencies Hub.”
The good news is that PayPal may have introduced the concept of cryptocurrency to millions of new users. However, the shortcomings may prevent them from using the platform for long.