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On October 21, 2020, PayPal Holdings, Inc. announced the launch of a new service enabling its customers to buy, hold, and sell cryptocurrency directly from their PayPal account. The initial roll-out, which should happen in the “coming weeks,” would permit U.S. PayPal customers to hold Bitcoin, Ethereum, Bitcoin Cash, and Litecoin directly within the PayPal digital wallet. PayPal also announced that it has received a conditional New York BitLicense and that it is partnering with Paxos Trust Company. PayPal also indicated that it would make the cryptocurrency available as a funding source for purchases at its 26 million merchants worldwide next year. It hopes to extend the service to Venmo and international payments in 2021.  

In the wake of the announcement, many cryptocurrencies increased in value; BTC rose by more than 15%. It will be interesting to see if this increase will be sustained or disappear into the volatile noise of BTC.

LEGAL TOKENS

Most crypto aficionados know that the IRS views cryptocurrencies as property, meaning that every time someone buys or sells cryptocurrency (or uses cryptocurrency to purchase something) there is a taxable transaction which will require gains or losses to be tracked. But will casual or novice users be blindsided by this? PayPal’s announcement includes a statement that it will “provide accountholders with educational content to help them understand the cryptocurrency ecosystem, the risks and opportunities related to investing in cryptocurrency.” It will be interesting to see if tax accounting education will be included in this. 

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Brett Cotler | Associate

Brett Cotler is an associate in Seward & Kissel’s Taxation Group and Blockchain and Cryptocurrency Group. Brett structures and advises clients on investments in digital assets, offerings of digital assets, and crypto-businesses. Brett specializes in U.S. federal and state tax and regulatory matters. He also:

  • Tokenized various assets;

  • Solves complex tax issues for companies, their principals, and their investors;

  • Structured an upstart token exchange; and

  • Advises on New York State Virtual Currency License applications.

“Under current U.S. law, any time a person uses cryptocurrencies for payments, it’s a taxable event, and a lot of casual PayPal users could end up being completely surprised by tax liabilities that could result from buying and selling bitcoin or other cryptocurrencies via PayPal.”

Brett’s thoughts on PayPal’s new crypto services, as published in PaymentsSource article “Why PayPal’s crypto plan may not be fully mainstream”