Buying Bitcoin with Credit Cards: Where We Are Now
The relationship between bitcoin and credit card lenders has always been a bit rocky. For some time, buying bitcoin with a credit card has been possible, but quite risk-prone. In recent weeks, however, the relationship between traditional banking and new finance made a full 180-degrees turn. For example, Visa conceded that the recent rash of multiple charges to account holders that utilize debit or credit cards on Coinbase was Visa's fault and the result of the company changing its merchant category codes (MCC).
The MCC change came about to reclassify bitcoin credit purchases as "cash advances" instead of "purchases." This means that Visa can add up to a five percent cash advance fee to any processed bitcoin purchase, with these "cash advances" not being eligible for the standard interest-free grace period, being denied any reward points, and being subjected to higher interest rates.
With MasterCard joining Visa in the MCC switch, and with Discover, Citibank, Bank of America, JPMorgan Chase, Capital One, and others rejecting bitcoin purchases altogether, a de facto referendum on purchasing bitcoin on credit is in effect. While there are options still available, you must sincerely ask yourself if it is worth it to still buy bitcoin using a credit card.
The Banks' Point-of-View
From the banks' point-of-view, shutting down credit purchasing of altcoins is logical. Banking products like loans and lines of credit are, by their nature, incompatible with bitcoin. For one, bitcoin are non-refundable, non-recollectible assets. Should you default on your repayment of the credit purchase, the bank has no recourse for collections but litigation or third-party collections. Worse, it may be difficult or impossible for the bank to prove that you received the bitcoin in the first place, making litigation fraught with risk for the banks.
A similar scenario was played out early in bitcoin's history with the PayPal Chargeback Scandal, where bitcoin buyers would buy bitcoin with PayPal, only to claim they never received the product and trigger a chargeback. As PayPal could not prove that the transaction failed, the company was obligated to complete the refund.
With the sudden downturn in the bitcoin market, many of the banks suddenly became exposed when credit line holders and credit card users could no longer pay off their bitcoin purchases. Buying bitcoin with a credit card increases the purchase cost of the investment and subjects the borrower to strict restriction on the transmutability of the holding. The situation created a divided opinion in the banking industry. Most banks decided to get out of the bitcoin credit purchasing business altogether, while others opted to reduce their risk by raising the cost of affected credit card purchases.
Regardless of the methodology, it is bad news for those seeking to leverage bitcoin via credit.
Using a Credit Card to Buy Bitcoin
Having said this, it is feasible to use a credit card to buy bitcoin. Despite the fact that buying a high-risk asset with money you do not have is considered to be too dangerous to be ethically recommended, there are still options for those dead set on pursuing this path.
Many online banks still allow credit card users to purchase bitcoin. They include:
- Fidor Bank
- Change
- Bankera
- Worldcore
- Monalize
- USAA
- Simple Bank
Many of the larger banks like Goldman Sachs, Toronto-Dominion Bank, the Royal Bank of Canada, and the National Bank of Canada have all announced that, for now, their bitcoin purchasing policies have not changed.
As far as the exchanges go, Visa and MasterCard have both announced that there will be no changes to users' ability to use their cards to make bitcoin purchases, although the fee schedule will or has changed.
If you are insistent on challenging the banks and are willing to pay the transaction fees to do it, there are repurchasing services like VirWox, which allows users to buy a publicly-traded game credit - like Second Life Lindens - with their credit cards or PayPal with the purpose of trading them for bitcoin.
Despite what methodology you choose, be fully aware of the risk you are taking on. Research both your bank and your exchange's policies, ask questions if needed, and assume no more risk than you can handle.
If you are interested in bitcoin investment topics, be sure to read Bitcoin Market Journal and learn to invest like a pro!
Good info
Let's keep this going
Thanks
Bitcoin's cousin ethereum is trying to position itself to be one of those winners among the business community. Developers have created a new blockchain that would reduce its energy consumption to almost zero and allow it to scale as well as improve security, said Mike Goldin, a software engineer at ConsenSys, which builds applications on top of ethereum.
If we get to a place where ethereum scales 10,000 X, a million X, but it's using a million X energy ... game over," Goldin said. "We'd have to drain the power of the sun to power this blockchain. If we scale ethereum, but we don't also scale the power consumption, it's useless.
Thanks for sharing all of these considerations. The reason I used a credit card to buy some crypto assets last year was that on Coinbase, it was much faster to use a credit card, absorb the fees (often you'd make the fee back within minutes due to the upward market), and have your digital currencies immediately. I'd also pay the balance immediately as well.
I believe they've changed it a little so that purchasing with a bank account transfer is a little quicker, but anyhow, I can't do it any more since I don't have a credit card with any of the banks you listed who still allow it.
I do appreciate this insight because it's interesting to consider things from the bank's point of view since they very clearly have different goals than the average crypto advocate.
Buying cryptos with a credit card can definitely be tricky. I think keeping in mind the adage of "don't invest more than you can afford to lose" applies here, as buying on margin is almost always a bad idea.
Thanks again for sharing.
Some banks have limited the use of their cards to purchase BTC as part of their strategy to combat the land they have been losing compared to cryptocurrencies.
Valubale information from Author, keep it up lad!
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This article has opened my eye about why company like Visa rejected crypto at the first time. I thought they were afraid of losing the banking job as Bitcoin was designed to unbank the banked. Thanks for the perspective.
I think the cards that are decentralized (usually based on the Ethereum blockchain will make credit cards moot sooner than we think