Crypto Crackdown: Credit Cards Categorize Coins as “Cash Advances”
The popular cryptocurrency exchange app Coinbase got more some bad news this week when it was discovered that many credit card issuers have begun categorizing transactions on the platform as cash advances. As a result customers attempting to buy crypto coins with credit cards may be subject to additional fees (often $10 or 5% — whichever is greater). This issue was actually first noticed by users days ago, with one user detailing the issue on Reddit. In a statement published by MarketWatch, Coinbase explained, “Recently, the [Merchant Category Code] for digital currency purchases was changed by a number of the major credit card networks. The new code will allow banks and card issuers to charge additional ‘cash advance’ fees. These fees aren’t charged or collected by Coinbase. These additional fees will show up as a separate line item on your card statement.”
It would seem that this change in policy could be the first step toward traditional banks and card issuers cutting off cryptocurrency transactions. However some banks have already moved forward on that, with Capital One disallowing customers from purchasing Bitcoin, Ethereum, and other crypto coins with their credit cards. Explaining their decision to the Wall Street Journal, the bank said the move was “due to the limited mainstream acceptance and the elevated risks of fraud, loss and volatility, adding that it would “regularly evaluate the decision as cryptocurrency markets evolve.” Meanwhile MarketWatch reports that other financial brands are now exploring the issue further.
Likely not by coincidence, the price of Bitcoin has continued to slide in recent days. As it stands at press time, a single Bitcoin is currently worth less than half of what it was at its $19,783 peak in December. Similarly (although not as dramatically) Etherium has fallen from a high of $1,417 in mid-January to around $950 as I write this.
While the switch to credit cards charging cash advance fees on crypto transactions might seem like a small change, it would seem to signal a major shift coming that could halt any mainstream momentum cryptocurrencies have gained in the last few months. Moreover it shows government oversight and regulation aren’t the only threats facing the space. Of course hardcore crypto enthusiasts will likely always find a way around these issues but eager investors who jumped on board at the recent height of the crypto craze may be second-guessing themselves this week.
Also published on Medium.