FinTech companies are market leaders or laggards?

Crypto purchase on PayPal

FinTech company, PayPal has allowed users to purchase crypto since October 2020, allowing users to buy, sell and hold crypto on their wallets. This is a similar service to other online banks such as Revolut. This may be a great entry for beginners to get a sense of crypto, exposing investors to the volatility of crypto. However, any experienced crypto investor and user knows that this is not true ownership. Truth be told, the user does not own the crypto they think that they are buying. In the case of Revolut, users are “holding” crypto that Revolut owns. This is a prime example of custodial wallets, where the FinTech company is the true owner of the crypto that the users believe they own. Even more so on platforms that do not allow you to withdraw your crypto to external or third-party wallets.

This month PayPal took a highly requested leap towards allowing their users to withdraw their purchased crypto and digital assets to external wallets and exchanges. Some may say that this is a revolutionary step for a public FinTech company. That this is a right step towards greater adoption. This is true. However, according to demand it was about time.

Jose Fernandez da Ponte, senior vice president, blockchain, crypto and digital currencies at PayPal stated back in 2021 at the CoinDesk’s virtual Consensus event that they had planned to allow users to move their crypto to third-party wallets. “We are definitely responding to demand from users, that is one aspect” stated Jose. He also vocalised that as PayPal is a payments and commerce company, they are thinking about their role in the ecosystem is about increasing access.

Market leader or market laggards?

From a consumers and investors perspective, over the last two years there has been a significant rise in non-custodial wallet usage. This is evident when looking at the monthly DEX volume, as using a DEX requires the usage of a wallet.

Therefore, it poses the question: “Is PayPal really a market leader or not?”. DEX users have been moving crypto assets and NFT’s for years. There are other mainstream fintech companies that still do not allow the withdrawals of cryptos. Will see if PayPal will trigger a herd behavior for other custodial fintech companies.

However, note the fact that PayPal’s “game breaking” development is very finite. There is a very limited selection of crypto’s- Bitcoin, Ethereum, Bitcoin Cash and Litecoin. Hopefully PayPal will increase their selection of cryptos in the near future. If you know anything about diversification, then this selection is far from being diversified. Additionally, the external wallet withdrawal is for the time being only limited to eligible U.S. customers.

What FinTech companies can learn from Insula.

Insula Investment Management is like the rabbit that came late to race competing against cheetahs, and still won. At Insula investors can expose themselves to 40+ cryptos, have a private key, have a non-custodial wallet, and low fees. Insula has been utilising non-custodial wallets for years.

“Not your keys, not your coins” is something every crypto consumer, investor and trader should always remember. “Investing” in crypto and storing them on CEX or FinTech platforms that do now allow withdrawal, is like buying a car without a certification of ownership.

Diversification is one of the strongest strategies to mitigate risk. Having “all eggs in one basket” is what PayPal offers their users. If this basket drops, you will break all your eggs. Idealistically PayPal allows users to invest $1 into Bitcoin or Ethereum and experience true volatility, and worst-case scenario scare inexperienced investors away. Being over leveraged or even entirely leveraged into one or two coins is simply reckless. Depending on which crypto category (DeFi, Metaverse, P2E, L1’s, L2’s etc.), or market cap size you invest, one’s investment will move at different rates. It is for this specific reason that diversification can mitigate or counterbalance losses.

Apart from diversification, non-custodial wallets and low fees, Insula provides human support, onboarding, and contact. Making your first crypto investment can be extremely overwhelming. It is therefore Insula onboarding and support team and always at your disposal. When you consider making your first crypto investment, DYOR! Don’t choose the website that “looks the prettiest”. As behind this superficial website may lie a lot of FAQ, chatbots, dead-end emails that refer you back to the FAQ. Rather choose an investment platform that provides true ownership (non-custodial wallet), human interaction and that does not limit you two four cryptos. Find the rabbit that’s late to the race and still wins. In the end it’s an endurance race and not a sprint race.

What is true ownership?

“Not your keys, not your coin” or “Not your key, not your Bitcoin”. You hear this phrase in a lot of different variations. However the point here is the reference to the word “key”. Key refers to the Key phrase, also known as seed phrase or recovery phrase. This is the series of randomised 12 to 24 words that will grant you access to your wallet in case you forget your password. This is your ultimate back-up to regain access to your wallet.

Various CEX and FinTech companies that allow crypto purchasing and selling DO NOT provide users with keys. Ultimately raising the questions of “who really owns my crypto”. This question arises because of the fact that CEX and FinTech companies are able to block and freeze any transactions. Often “to act in the interest of the community” or “to protect users”. Therefore one may ask, who really has ultimate control over the crypto that you have purchased. For true ownership one can use wallets such as Metamask or Ledger and Trezor. These wallets will create a key to all users, that only you are responsible for.

Just recently during this month since writing this text. There have been two different crypto companies that have done just this. Celsius have paused all withdrawals, swaps and transfers between accounts. Also Binance temporarily suspended withdrawals on the Bitcoin network.

Ultimately this boils down to whether or not this is something that concerns you. Users are free to trade and purchase on whatever platform they choose to use. However, it may be something important to note when making your decision.