Buy bitcoin with credit cards? Big banks say ‘no’


Chase, Bank of America and Lloyds Banking Group are the latest to bar credit card purchases of bitcoin. Capital One and Discover already ban buying cryptocurrency with their cards.

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Investors buying bitcoin and other cryptocurrencies with their credit cards are finding that tougher to do as major card issuers bar the transactions.

Bank of America, Chase and Citigroup in the United States, Lloyds Banking Group and Virgin Money in the United Kingdom, and TD Bank in Canada barred cardholders from purchasing cryptocurrencies with their credit cards early in 2018. Capital One and Discover already ban cryptocurrency purchases.

Bank of America and Citigroup announced their actions Feb. 2. Chase started banning cardholders from buying bitcoin and the like on Feb. 3. Lloyds announced on Feb. 4 and Virgin Money on Feb. 5 that they won’t allow bitcoin purchases on its credit cards. TD Bank joined the no-bitcoin crowd on Feb. 23. The latest bank to ban cardholders from buying bitcoin and other cryptocurrencies is Wells Fargo, in June 2018.

Wells Fargo “will continue to evaluate the issue as the market evolves,” Shelley Miller, a spokeswoman, said in an emailed statement to Bloomberg. refers to this as the “credit card company crypto squeeze.”

Capital One says it’s declining credit card transactions for cryptocurrency purchases due to the lack of “mainstream acceptance” and the high risks of fraud, losses and volatility in the cryptocurrency market.

“Capital One continues to closely monitor developments in cryptocurrency markets and exchanges,” the bank says, “and will regularly evaluate the decision as cryptocurrency markets evolve.”

Of course, the holder of a credit card can earn cash back, points and miles, from purchases of bitcoin and its crypto-cousins, from a card issuer that allows those transactions. But it’s not as clear-cut as that.

‘Be wary of buying bitcoin with a credit card’

Daraius Dubash, co-founder of travel website Million Mile Secrets, notes that a cryptocurrency transaction must be coded as a purchase, not a cash advance, to qualify for rewards.

“However, it usually isn’t worth it even if it is coded as a purchase because you have to pay a purchase fee of anything from 3 to 10 percent, which isn’t worth the rewards,” Dubash says.

Coinbase, the largest cryptocurrency exchange, charges a transaction fee of 3.99 percent when a buyer uses a credit or debit card to buy or sell currency. The fee for cardholders, though, could end up being much higher.

An email from Coinbase to its customers last week notes that “the merchant category code for digital currency was changed by a number of major credit card networks. The new code will allow banks and issuers to charge additional cash advance fees \u2026 that will show up as a separate line item on your statement.”

What this means: The average cash advance interest rate is 23.68 percent, nearly 8 percentage points higher than the national average rate charged on consumer credit cards, according to research. Cash advances come with high fees. The most typical fee is 5 percent of the amount withdrawn, or $10, whichever is greater. That’s on top of any interest rate charged.

Worse, with a cash advance, interest is charged from the moment the cash is withdrawn.

To Dubash, the message is clear: “Be wary of buying bitcoin with a credit card.”

“Getting emotional and buying into hype, not matter the investment type, are not solid ways to make decisions regarding investing for the future.”

Don’t fall in a hole ‘right off the bat’

Mike Brown, a research analyst at LendEDU, an online marketplace for refinancing student loans, agrees with Dubash. He cites the transaction fees – which often hover around 4 percent – charged by most cryptocurrency exchanges as being problematic.

“Despite bitcoin’s extreme fluctuations and its ability to gain 20 percent in one day, I don’t think even the most bullish of advisers would suggest going into a 4 percent hole right off the bat,” Brown says.

Brown says the potential to go into debt is especially troubling given that the value of bitcoin and other cryptocurrencies can crash “at the drop of a dime or internet rumor,” he says.

In December, LendEDU polled 672 active bitcoin investors and discovered that 18 percent of them had used a credit card to pay for a bitcoin purchase. Of those, 22 percent indicated they hadn’t paid off the credit card debt after buying bitcoin.

Bitcoin was going up, up and up until Dec. 11, 2017, when it closed at $17,549.67, according to Coinbase figures. Bitcoin has been falling almost ever since, closing Feb. 5 at $6,166.

“If a bitcoin investment plummets and an investor was planning to pay back their APR-ridden credit card debt with bitcoin profits, they will be left in an overwhelming financial hole,” Brown says.

Theoretically, the only way to stay on the plus side in terms of credit card rewards is to pay off your post-purchase balances in full to avoid interest charges, Brown says. Otherwise, interest charges will pile up and “bury any rewards you have earned,” he says.

Flights and hotels paid for with rewards

The danger has not stopped people from trying to use rewards cards to buy bitcoin.

Boston entrepreneur Yuri Cataldo says he started buying bitcoin and other cryptocurrencies with several credit cards – primarily his PayPal Mastercard, which earns 2 percent cash back on all purchases – in March 2017, but has dodged the interest-rate trap because he pays off balances shortly after making purchases.

“In 2017, I made enough from cash back to pay for my flights and hotel stays over Christmas, which was a nice bonus,” Cataldo says.

‘Not a wise way to fund any investment’

Michigan entrepreneur Andy LaPointe, a former investment adviser who now trains people to capitalize on bitcoin and cryptocurrency investing, says it’s not smart to buy virtual currency with a credit card. That’s regardless of any credit cards one might earn in the process.

“If an individual gets started investing in bitcoin using a credit card to make the purchase, it creates the habit of buying investments with credit cards,” LaPointe says.

“That is not a wise way to fund any investment, since the return on the investment has to be at least the annual interest rate charged by the credit card to break even.”

He says the ease of using a credit card to purchase virtual currency adds to the investment risk, because some “can easily get caught up in any current hype and get emotional about the investment and purchase.

“Getting emotional and buying into hype, not matter the investment type, are not solid ways to make decisions regarding investing for the future.”

Or, as LendEDU says, going into debt to buy bitcoin “is not a wise decision, no matter which way it is spun.”

See related: Using a credit card to buy crypto assets: Pros and cons, Charged Up! podcast: Uncovering cryptocurrencies, 10 things you can’t (easily) buy with your credit cards

While putting a prohibition on such cryptocurrency purchases for now, Wells Fargo “will continue to evaluate the issue as the market evolves,” Shelley Miller, a spokeswoman, said in an emailed statement.

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