PayPal, Venmo and CashApp simplify cryptocurrency for beginners

If you find cryptocurrency intimidating, payment apps want to help. Venmo , PayPal and Cash App have added cryptocurrency purchasing to their popular payment services, expanding the reach of Bitcoin , Ether and other digital money to investors who may be daunted by jargony exchanges and a multitude of digital wallets. That convenience, however, comes at a cost that can eat away at returns. 

Payment apps are popular because they make it simple for people to shop online using their phones or split checks with friends. The apps are also meant to be fun, with some featuring emojis and digital stickers decorating transaction notes. The services are so widespread that even President Joe Biden reportedly uses Venmo to send gifts to his grandchildren. 

The apps also bring familiarity to buying cryptocurrency, a process that can present a psychological hurdle for some potential investors because exchanges require separate accounts and often have complex registration and transaction processes. The payment apps also remove the need to understand digital wallets, a subfield of crypto that can quickly become its own research topic.

The convenience of buying cryptocurrency on payment apps, however, comes with trade-offs. Venmo, PayPal and Cash App lock you into a transaction fee that might be cheaper if you comparison-shopped at more than one exchange. And unlike exchanges, which let you move crypto, PayPal and Venmo hang on to it unless you want to sell it through the same app.

Despite their limitations, the availability of cryptocurrency on payment apps may help the public get comfortable with financial assets that've been cloaked in esoteric math and that are popularly associated with illegal online activities. (A new Bitcoin-linked ETF that started trading last month will also help expand acceptance of digital money, analysts say.)  

"It's a great training wheels experience," said David Siemer, CEO of Wave Financial, an asset management firm that focuses on cryptocurrency. 

Venmo and its parent PayPal, which was co-founded by crypto enthusiast Elon Musk, offer Bitcoin, Ether and other forms of cryptocurrency. Cash App, owned by Square , supports only Bitcoin, the biggest and most widely known cryptocurrency. (Square is run by Jack Dorsey , another cryptocurrency promoter and the chief executive of Twitter.) 

PayPal and Square, both publicly traded companies, didn't provide comment for this story because they were about to release their quarterly earnings reports, which legally bars them from talking to the media.

Cryptocurrency has expanded in popularity over the last decade. Ten years ago, when Bitcoin -- the original cryptocurrency --  traded at about $15, digital coins were widely seen as the currency of online drug purchases. Now Bitcoin is trading at around $63,000. On Monday, Green Bay Packers quarterback Aaron Rodgers announced he would take a portion of his salary in Bitcoin through Cash App. The currency is accepted as payment by AT&T and the Dallas Mavericks, and you can also purchase Amazon , Delta and DoorDash gift cards with Bitcoin. Facebook is trying to launch a cryptocurrency, Diem, along with a consortium of partners. El Salvador embraced Bitcoin as a national currency, though its adoption has been bumpy. 

Bitcoin and other cryptocurrencies are now widely available at trading websites and through stock trading apps like Robinhood. ATMs handling cryptocurrency have popped up around the world, though they tend to charge hefty fees. Coinstar machines, which let customers turn spare change into gift cards at retailers like Walmart , can also dispense Bitcoin through a partnership with Coinme. Debit cards backed by cryptocurrency are available through companies including Coinbase and BitPay. 

Despite the growing acceptance, cryptocurrency services in payment apps are best thought of as introductory investment platforms, analysts say, where beginners can buy crypto and get accustomed to its volatility. Serious investors, however, will likely find them limited compared with dedicated cryptocurrency exchanges, which also allow balances to be loaned to generate returns. 

Exchanges like BlockFi or Celsius, or peer-to-peer lending systems, like LendaBit and BtcPop, let cryptocurrency investors lend their holdings to the exchange or other users for a fee. The practice isn't without its risks; crypto lending raises unanswered regulatory questions, and the Securities and Exchange Commission is investigating a small number of exchanges. You can also compare rates between different exchanges and use them to trade one kind of cryptocurrency for another.

Still, Square has seen mounting user interest since it introduced features for buying and selling Bitcoin on Cash App in 2018. The company, known primarily for helping merchants process card payments, earned $97 million from Cash App fees on Bitcoin sales in 2020. It's already brought in nearly $130 million in the first half of 2021. PayPal doesn't break out how much of its revenue comes from transaction fees on cryptocurrency sales from its own app or from its subsidiary, Venmo. 

Buying Bitcoin or other cryptocurrency offerings on PayPal means you've let the company store your cryptocurrency. The same applies to Venmo. Cash App offers more services, allowing people to send and receive Bitcoin or put it in their own wallets, but it charges a fee if users want to withdraw their coins immediately. Withdrawal will be tempting for people who want to start buying and selling the cryptocurrency on other exchanges, which they can't do from the payment app. 

Athan Slotkin, an entrepreneur and business consultant, thinks the features are great if they attract new investors to cryptocurrency. But he added that most people won't really learn much about crypto if they stay on one app. The best way to learn is by finding forums and online communities on Twitter and Discord, and trying out some small transactions on exchanges.

"You kind of just have to go down the rabbit hole yourself," Slotkin said.

Giving people simpler tools for buying and selling cryptocurrency has the potential to drive interest in Bitcoin, Ether and the like, analysts say. If the features encourage a significant number of new cryptocurrency buyers, the increased demand could drive up crypto's value. With little data on how many transactions are taking place on these apps, though, it's unclear whether that's happening.

To really interest users in cryptocurrency, payment apps will need to introduce wallets and exchanges, analysts say. A streamlined system for buying, selling, storing and lending cryptocurrency could interest more people and keep them using the services instead of looking elsewhere for flexibility, says Corey Barrett, an analyst with M Science. 

"It would unlock a portion of the cryptocurrency investor base who were never interested until they had that functionality," Barrett said.