You can buy crypto currencies with your PayPal balance.
|I'm the proud owner of one whole LTC.|
Do I recommend doing this?
No. Actually, let me be more clear, HELL NO.
The issue is that your crypto is stuck on PayPal. You have no way to transfer it to a CeFi network like Blockfi or Celcius to earn interest and use as collateral against loans. You also can't transfer it to your own private wallet to take self custody.
Update: You can transfer off PayPal now.
So why did I buy 1 LTC?
With Bitcoin and the potential for it to revolutionize capital markets makes it an asset you'll want control over. If you were able to purchase BTC from PayPal and then move it to your own private wallet, then I would have no issue suggesting you take a look at PayPal.
In particular, what really stood out to me was how they state that your crypto is protected and that any hacks you'll be refunded:
"There’s no digital key to lose and we’ll replace your crypto in whole if your account gets hacked."
But because you can't transfer funds, I don't feel comfortable having BTC locked away in PayPal. So instead the options are to buy Litecoin, Bitcoin Cash or Ethereum.
Litecoin, Bitcoin Cash and Ethereum on PayPal
Bitcoin Cash is a fork of the original network to enable a larger block size and thus faster transactions. As BTC dominance continues, Bitcoin Cash simply won't become the dominate layer 1 money supply.
This is not to say Bitcoin Cash is bad, it's just that money is a winner takes all market. We used Gold for 5,000 years and not much else as layer 1 money. So, as far as I can tell Bitcoin Cash has potential to stick around as a payment method for now, perhaps it will be a layer 2 at some point where it's used for small transactions.
But to cut to the chase, you can actually use Bitcoin Cash to purchase stuff so it's pretty pointless to lock away in a PayPal account as you can't use it to buy anything and it's an asset that won't appreciate like Bitcoin most likely will.
Next we have Ethereum.
I actually want to use Ethereum for various dapps that are built on the network. I can't do that if it's locked away. Also, you can earn 5% or more interest on various networks with Ethereum while with PayPal you get nothing. So I don't see the value in being able to purchase ETH through PayPal.
So that leaves us with Litecoin, LTC. The original fork of Bitcoin. It's a similar currency to Bitcoin but it uses a different cryptographic algorithm called Scrypt. As it's an original "alt" coin it always gets lumped in with BTC and has the potential to appreciate in price.
So for me, if I'm going to buy something just for a little fun, Litecoin appears to be the best option for an account where your crypto is locked away and the only thing you can do is sell it in the future (which disqualifies BTCH and ETH).
Don't forget about taxes. It may be tempting to convert your PayPal balance into a crypto asset, but if you need that money you're going to have to sell it back into dollars in order to transfer it to your checking account which is a taxable event. So if you do buy LTC, plan on holding it for at least a year so you pay short term capital gains.
One potential advantage of buying LTC through PayPal is the potential for it to appreciate in value. When I bought my singular Litecoin it set me back $200. The next day after I purchased, it dropped in price to $185, resulting in a $15 loss.
Then, a month later LTC has spiked again to over $250. I made $50 for doing pretty much nothing other than taking a small risk.
Buy things with LTC
Last thing to bring up is that you can make purchases with your crypto, in this case Litecoin when using PayPal. I recently bought the domain name "ethereumforge.com" and could have bought it with my crypto in my account.
If you're a bit more risk tolerant than me, you could exchange your PayPal balance for BTC. Instead of your balance sitting there doing nothing, you could instead own something that could appreciate in value and also use it to purchase things through PayPal
However, as I stated Bitcoin is too valuable to have locked away in PayPal. You can earn a decent interest rate on Ethereum and use it to pay for gas fees and Bitcoin Cash is another payment alternative. So in short I chose Litecoin simply for the fun of owning 1 LTC in PayPal as it's locked away and I can't do anything with it other than sell it at a later date.