Wells Fargo Shuts Down Cryptocurrency Credit Card Purchases
Fortunes took a turn for cryptocurrency investors using credit cards to purchase the digital money when Wells Fargo announced recently it would join a bevy of banks, including Citigroup, JPMorgan Chase and Bank of America barring cryptocurrency transactions on issued credit cards. Coupled with Visa and Mastercard's reclassification of buying cryptocurrency in February as expensive cash advances instead of a run-of-the-mill purchase, Wells Fargo's change of policy makes credit cards an increasingly unattractive choice for those wanting to rake in the digital dollars.
In the heady days of 2017 when the value of bitcoin, Ethereum and other cryptocurrencies screamed upward, some would-be millionaires prefered paying for their digital currency of choice via credit cards in order to reap the rewards that come with spending money on that card while buying a product that, in theory, would only make them richer. The idea of buying $500 worth of cryptocurrency with a credit card, collecting whatever cash back or points that purchase entitles you to, and then watching that $500 worth of currency turn into $5,000 in a month's time proved a tempting proposition for certain pioneers of blockchain-powered currency.
Credit card issuers and networks take a more cautious tact when it comes to the volatile cryptocurrency market. Beyond questions of whether some of the more popular types of cryptocurrency are vulnerable to price manipulation, using a credit card to purchase a product that may either significantly increase or depreciate in value sounds an awfully lot like gambling. The percentage of cryptocurrency investors using their credit cards may be low—a survey of bitcoin investors by LendEDU last December found only around 18% relied on their credit cards for the purchase—but considering the real risk that some of these aspiring one-percenters may max out their cards on cryptocurrency that becomes virtually worthless, banks may want to discourage others from engaging in such risky behavior.
Cryptocurrency investors who still prefer using credit cards now have a rapidly shrinking list of reasons for their behavior. Most credit cards that allow a purchase of cryptocurrency to go through treat it as a cash advance, which is usually 5% of the total transaction. Add to that the processing fee tacked on by whatever cryptocurrency marketplace you purchase the currency through—Coinbase charges 3.99% for example—and the price for using plastic becomes considerable and in many cases not worth the trouble.
