Perhaps you are right in some ways but this type of thinking is only for those who have deep knowledge about crypto and the importance of having your personal wallet, even though in practice this is not mostly applicable to all the users in crypto (their are millions of users who still prefer to keep their crypto asset in exchange rather than in their personal wallet and this is after knowing about all the risk involve) in the case of PayPal, this is mostly relating to the average joe who have less knowledge of all this things you said and still want to be in crypto regardless,

And if your perception about "not your key, not your money is that strong" then i guess you have no funds with any financial institution, because as far as i know, financial institution are directly in control of people's funds and billions of people all over the world are still trusting them with their funds, we can not deny the fact that bank still plays a vital role in our spending, if not all then most of our cards are attached to a bank,
PayPal may have their own way of providing this service but bottom line is they recognize crypto and are willing to provide the service to people, and since they are willing to educate people in this regard then i don't think they will be misguided after all.