Want to buy cryptocurrencies with a credit card?

You remember the old commercials that said “There are some things that money can’t buy, for everything else there is MasterCard?” Last year we highlighted a few things that you couldn’t actually buy with a credit card and this year another has been added: cryptocurrency.

A cryptocurrency craze is sweeping the world. It is almost making a universal currency as new cryptos pop up seemingly everyday. They are used much the same way as regular money or in at least one case to circumvent international sanctions. Cryptocurrencies are also a favorite of the criminal underworld to use for whatever nefarious scheme they are up to.

Several banks like Capital One and Discover have prohibited their cards from being used to purchase cryptocurrenies like Bitcoin. In 2018 Bank of America, JP Morgan Chase and Citigroup have joined that list though Bank of America debit cards can still be used. Internationally Lloyds Banking Group (Lloyds Bank, Halifax Insurance and Bank of Scotland), Virgin Money and TD Bank have also prohibited this practice.

Why is this? Crypto presents a problem for those banks. Credit card debt is already high and allowing a customer to get a loan to purchase an untraceable currency is not an appealing thought for them. At the same time there is no way for them to recoup anything if the card is stolen since once the purchase is made there is no way to reverse it. Since the currencies are untraceable the banks cannot monitor it and therefore cannot be on the lookout for criminal activities.

Just about every credit card expert does not recommend buying cryptocurrencies with a credit card to begin with and that includes many pro-crypto investors. The high transaction fees negate any potential reward that can be accumulated, if they qualify at all. Many credit card issuers code the transaction as a cash advance rather than a purchase and that can have a huge impact on your credit card statement. The average cash advance in the US has around 24% interest and has fees added on top of that with interest being charged the moment the transaction is completed. Add that on top of the transaction fee to purchase a crypto and that can make an expensive transaction.

Nearly all experts do not recommend buying a cryptocurrency simply because of its volatility. Bitcoin has been able to gain 20% in value in a day but it has also lost huge percentage points in value in a day as well and in only three months lost ⅔’s of its value. With somewhere around 20% of buyers using a credit card to purchase a cryptocurrency it is easy to see why a bank would not want to be a part of this. Their customers could get so far in the hole they will never climb out which would negate any rewards that were gained through these purchases.

For merchants is there any value to be gained by accepting a cryptocurrency? There are some major companies that do. Subway, Microsoft, Overstock, Expedia. PayPal and Shopify all do as well as several others. There are even a handful of businesses that only accept cryptocurrency. Some of these businesses have been doing it going on five years or more and as a merchant you know that if something is not profitable you are probably not going to do it. Many other companies have shied away due to the perceived risk or for tax implications that need to be sorted out by regulatory bodies. There are also processing fees that need to be paid just like with credit cards, it seems that there is no getting away from that. For the moment the amount of money that is used for transactions with a cryptocurrency is insignificant right now but this is something that a merchant may want to start looking into.

There are many people that swear by cryptocurrencies and believe that this is the wave of the future. There are many others that want nothing to do with this. At the very least this is something else that people cannot use a credit card to purchase. Could the banks be just trying to protect their customers from themselves or do they see cryptocurrencies as a threat and are trying to limit their exposure? Time will tell.