Shares of the San Jose-based company were up nearly 1% to $205.60 in premarket trading.
PayPal has been holding talks with BitGo, a company that helps investors store bitcoin securely, and could reach a deal within weeks, Bloomberg reported, citing people familiar with the matter.
Talks could still fall apart and PayPal could opt to buy other targets.
BitGo offers digital wallets that require multiple signatures for transactions, as well as offline vaults for storing Bitcoin and rival currencies.
Based in Palo Alto, Calif. the company was founded in 2013 by CEO Mike Belshe. Bitgo was one of the first companies in the space to focus on institutional investors, according to its website.
The company applied in August to New York regulators to become an independent, regulated qualified custodian under New York State Banking Law. Custodians like Bitgo are responsible for safekeeping digital assets using secure storage.
"New York-based financial institutions are critical for the accelerated adoption and acceptance of digital assets and BitGo has received tremendous interest from institutional investors in the state," the company said in an August press release.
Earlier this week, PayPal unveiled plans to allow users to buy and sell cryptocurrencies on its payment platform.
Users will be able to buy, sell and hold bitcoins, as well as rival digital currencies such as ethereum, litecoin and bitcoin cash, within their existing PayPal accounts, the company said, while hinting at plans to make them available as a funding source for purchases within its network of 26 million global merchants.
BitGo is backed by investors including Goldman Sachs, Craft Ventures, Digital Currency Group, DRW, Galaxy Digital Ventures, Redpoint Ventures, Valor Equity Partners and Founders Fund.