Bitcoin is the largest digital currency by market value and while backers of digital assets continue pushing for mainstream uses, namely buying and selling goods and services with bitcoin, one of the asset's primary applications remains money transfers.
Advocates extol virtues such as ease of transfer, instantaneous receiving of funds, functionality and other traits as pillars of bitcoin's transfer capabilities. Thing is, many of those characteristics apply to PayPal, the dominant name in online and mobile cash transfers.
, including peer-to-peer and business-to-consumer, are logged on the blockchain
, the digital record for the crypto currency universe. There are some benefits to bitcoin when it comes to transferring funds, particularly if the dollar amounts involved are significant.
New PayPal users can and do encounter holds on their funds if the dollar amounts are high until the company learns the user's transaction habits and ascertains that the transfers are credible. Likewise, even established, frequent PayPal users can be subject to holds. For example, say you run an online business and most of the payments you take in via PayPal are in the $500 to $1,000 range. Take in a $10,000 payment one day and PayPal is likely to view that as unusual and put a hold on those funds.
Burdensome holds and account freezes aren't an issue with bitcoin transfers. In one transaction in September, a single party seamlessly shifted $1 billion worth of the digital coin in one fell swoop. No blocks, no holds, no account freezes. Just a simple notch on the blockchain. Another day this month, the bitcoin network shifted the equivalent of 412 tons
of gold in a single day.
Examine The Fees
Both bitcoin and PayPal are considered part of the fintech ecosystem, which although it's growing, is still considered a new technology.
While fintech is reshaping the financial services landscape, many of the technologies and companies operating in this space, including bitcoin and PayPal, retain an old financial services relic: fees
“For initial transfer fees, you’ll pay about the same amount for both PayPal and bitcoin (assuming we use Coinbase as an example),” according to Finder.com
. “But PayPal has a slight edge. When you sell your bitcoin for fiat currency (or government-issued currency, like dollars and euros), you’ll pay another fee. Meanwhile, on PayPal you only pay a fee when you initiate the transfer.”
Broadly speaking, bitcoin transactions are cost-effective
, but they probably make the most sense for those desiring anonymity, international transfers and high dollar amount transactions. For businesses and consumers transacting on a domestic basis in the three- to four-figure range, PayPal remains the more practical option.
Currently, bitcoin volatility is in something of a slumber relative to the digital currency often turbulent history. Remember, bitcoin flirted with $20,000 in late 2018. Eleven months later, it was residing around $3,700
. By some estimates, bitcoin's volatility can be 10 times that of the U.S. dollar and that volatility can be realized in short time frames. That's advantageous for traders and maybe even for investors looking to buy on dips, but for those looking to receive payments, massive price fluctuations in short time spans are not appealing.
Imagine billing a client for $10,000, requesting payment in bitcoin when the cryptocurrency resides at the same price, receiving the payment and a day or two later bitcoin trades at $9,000. This scenario is a reality users of bitcoin transfers for goods and services must confront.
Situations like that speak to manipulation in the bitcoin market. The crypto market is not nearly as regulated as traditional financial marketplaces, such as equities and fixed income.
“If [investors] think there’s the same rigor around that price discovery as there is on the Nasdaq or New York Stock Exchange, they are sorely mistaken,” SEC Chairman Jay Clayton
recently said. “We have to get to a place where we can be confident that trading is better regulated.”
Unless you're intending on amassing a stake in bitcoin as long-term store of value/investment, it's probably appropriate to stick with PayPal as an avenue of transferring money due to the platform's lack of volatility and non-existent manipulation concerns.
Related: Why Advisors Must Understand Blockchain