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PayPal support sees brief bitcoin price spike

PayPal has announced support for bitcoin, allowing merchants to accept the cryptocurrecy as payment for online goods.

The integration will be relatively minor initially, with US-based merchants that use PayPal services able to accept bitcoin.

Read more: FTC orders shut down of bitcoin-mining firm Butterfly Labs (opens in new tab)

The e-commerce platform has also confirmed that it will be allowing several bitcoin payment providers to manage the transactions, meaning it is unlikely that PayPal, or its parent company eBay, will ever hold the digital currency themselves.

However, this hasn't prevented the news from having an instant impact on bitcoin's value. Following PayPal's initial declaration of support for the currency last week, bitcoin rose to a value of $440 (£271), according to CoinDesk (opens in new tab).

The long-term impact of PayPal's decision could ultimately lead to a drop in value for the cryptocurrency. By creating an easier way for current bitcoin holders to sell, the firm is, perhaps unwittingly, creating potential downward price pressure.

Particularly given the difficulty of mining new bitcoins, if the rate of people cashing out of bitcoin exceeds the creation of new money and interest flowing into the system, bitcoin's value could easily decrease.

Bitcoin owners might want to err on the side of caution before deciding to cash in on the cryptocurrency. In the days following PayPal's announcement, the currency's value has returned to its long-time $400 (£246) floor.

Read more: eBay considering PayPal split? (opens in new tab)

At the moment that's a long way from the all-time high of $1124.76 (£693) it reached back in November of last year.

Barclay has been writing about technology for a decade, starting out as a freelancer with IT Pro Portal covering everything from London’s start-up scene to comparisons of the best cloud storage services.  After that, he spent some time as the managing editor of an online outlet focusing on cloud computing, furthering his interest in virtualization, Big Data, and the Internet of Things.