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Comment by hanniabu | Hacker News Reader

> Paypal would have to eat the difference from buy to sell price.

Why? If they never offer withdrawals then they don't need to worry about that.

If I buy a BTC for $30,000, then later decide to sell it for $47,000, Paypal will lose $17,000 if they didn't actually have a BTC somewhere in their vault.

This is the same idea as bucket shop operations that "trade" stocks with their clients without actually processing trades on any exchange.

When prices are rising, with new buyers available, then a bucket shop can do just fine for themselves. As soon as they have more sellers than buyers, at a price higher than they came in, the shop is the one that has to cover the difference.

If no one can transfer bitcoin out of the PayPal system then the only way for you to sell it for $47,000 is to find someone else on PayPal willing to buy it for that amount (or actually a bit more because of the spread). So PayPal don't lose anything.

Admittedly this doesn't sound right to me, but it's what the parent commenters seem to be saying.

It doesn't work like this. If paypal's customers decide to cash out as a whole, then that means there is a net sell. There won't be enough buyers in paypal to cover the sells. They would need to expose themselves to another market by buying / selling actual bitcoin to be able to float like you describe.

In most financial systems, there has to be a "banker" to make the market, i.e. they have to close the deals when the aggregate buy/sell deals end in surplus or deficits. So Paypal has to close the ending position -- at least that is my understanding.

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