Cryptocurrency: Expert on how financial system is being 'remade'
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The online payment system PayPal has announced that it will soon launch a cryptocurrency service in the UK. Cryptocurrency has grown more popular as an investment strategy in recent years, and this latest development will give people another avenue to potentially invest in digital currency.
The service is set to go live some time this week, and PayPal’s website says that their new service will help people to “discover crypto”.
Users will be able to buy, hold and sell cryptocurrency through PayPal and can buy digital currency for as little as £1.
PayPal also have articles on their website which aim to educate newcomers on crypto and help them to get started.
Bitcoin, Ethereum, Litecoin and Bitcoin Cash will all be available to trade through PayPal, with the company saying transactions can be “seamlessly managed” through their app and website.
Volatility is a well-known characteristic of cryptocurrencies, and PayPal have also provided information about the risks involved with trading crypto.
Laith Khalaf, head of investment analysis at AJ Bell, provided his thoughts on the latest development in the world of cryptocurrency.
He said: “The ability to trade cryptocurrencies is nothing new, but the significance of PayPal’s entry into the UK market is its potential to process crypto transactions between consumers and businesses.
“It’s already up and running in the US, where PayPal’s crypto ventures only began last October, so we can expect pretty rapid development on this side of the pond too.”
Mr Khalaf is sceptical over the legitimacy of the transactions that will take place using cryptocurrency between customers and vendors.
“Of course, there’s still the issue of consumer and business demand to transact in crypto,” he said.
“What’s more it’s questionable how many businesses that do accept crypto will want to hold onto it after the transaction has taken place, rendering such a transactional facility little more than a sales gimmick.”
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Khalaf continued: “Crypto is clearly hugely volatile, and while businesses have bills to pay in dollars, pounds and euros, they’re unlikely to want to store lots of crypto on their balance sheet, lest prices take one of their habitual nosedives.”
He concluded: “Of course, currently consumers get paid in traditional currencies too, so if crypto is being exchanged at both ends to facilitate a transaction, it’s really just a digital fig leaf covering up a payment that could have been made without it, minus the costs of conversion, not to mention the additional energy used in mining crypto.”
However, Mr Khalaf said that there appears to be a growing appetite for cryptocurrency in the UK.
He said: “It’s also significant that this crypto expansion is PayPal’s first outside the US, which suggests the tech giant thinks the UK is a hub of crypto activity worth tapping into.
“A survey conducted by AJ Bell earlier this year found that many UK investors were leapfrogging traditional forms of savings and diving in at the deep end by investing in crypto.
“Our survey found that six out of ten crypto investors don’t have an ISA, and half don’t have a pension,” Mr Khalaf added.
Despite the warnings from PayPal regarding the risks involved with crypto, Mr Khalaf is concerned about the possible pitfalls that users could experience.
“It’s certainly an area the FCA is taken a keen interest in, thanks to the rising popularity of crypto trading, and the potential for high levels of consumer harm from volatile prices,” he said.
“PayPal has doffed its cap to regulatory concerns, highlighting the educational content it will host alongside its crypto service, including the risks.
“That’s to be welcomed, though there are already concerning signs of reckless behaviour by consumers.”
He explained: “An alarming statistic is that 14 percent of UK crypto buyers funded their purchases using debt, according to figures released by the FCA in June.
“While many are no doubt using crypto as a bit of harmless fun with small amounts of money they can afford to lose, some consumers are at risk of getting sucked in and spat out by the crypto craze.”
Ultimately, Mr Khalaf believes that there are positives and negatives to take from the announcement of the new PayPal service.
He said: “Within the crypto market itself, PayPal’s presence is positive in that it is a high profile, publicly listed company which is already subject to regulatory scrutiny.
“But overall, the crypto craze remains a worry for consumer advocates and regulators, as well as inveterate luddites.”
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