Should You Buy Bitcoin With Your Credit Card?
January 25 2018 - 11:48AM
Dow Jones News
By AnnaMaria Andriotis and Paul Vigna
Some banks and credit-card companies have begun restricting
customers' purchases of bitcoin, shutting down a popular way to buy
the volatile digital currency.
This month, Capital One Financial Corp. decided it would no
longer let its customers use credit cards it issues when buying
bitcoin or other cryptocurrencies such as Ethereum "due to the
limited mainstream acceptance and the elevated risks of fraud, loss
and volatility." The bank said it would "regularly evaluate the
decision as cryptocurrency markets evolve."
The firm's decision followed Discover Financial Services' move
in 2015 to effectively prohibit purchases of digital currencies
with its cards.
Bank of America Corp. allows bitcoin purchases with the credit
cards it issues. "At this point there is nothing that would block a
transaction, but we are carefully reviewing our policy," said a
bank spokeswoman.
Citigroup Inc., which allows bitcoin purchases with its credit
cards, is also reviewing its policy, according to a person familiar
with the matter. TD Bank, the U.S. unit of Toronto-Dominion Bank,
said that as a result of security measures some bitcoin
transactions aren't being processed.
The moves could put a crimp in an increasingly common way to buy
bitcoin, which soared 1,375% last year and attracted widespread new
interest from individual investors before falling about 20% so far
this year. Despite bitcoin's growing popularity, some card
companies are expressing concerns about consumers using their
credit cards to buy the volatile currency and about taking on
exposure to those purchases.
Funding investments with credit cards isn't usual in traditional
markets. Among brokerage firms, Charles Schwab Corp. and TD
Ameritrade Holding Corp. don't allow it, and E*Trade Financial
Corp. lists several funding methods it accepts on its website, but
doesn't mention credit cards.
With bitcoin, some 18% of buyers funded their purchases with a
credit card, according to a survey released in December from
lending marketplace LendEDU. Of those, 22% said they didn't pay off
their credit-card balance after the purchase. Nearly 90% of that
group expected to eventually pay off their balance using profits
from the investment, the survey found.
Funding those investments with debt only adds to the risk of
investing in bitcoin. The volatile asset -- bitcoin fell more than
50% between its December peak and January low -- could result in
card holders being underwater before their bill comes due.
Investors need to cover what often are double-digit interest
rates on credit cards if they don't pay the bill in full, in
addition to fees on the bitcoin transactions. To offset those
costs, borrowers need bitcoin to rise substantially in value. That
can increase the chances of borrowers not paying their credit-card
bills if they owe more on the asset than it is worth.
Fraud losses are also a concern for card issuers. As more
cryptocurrency exchanges emerge, some card companies say there is
an elevated risk of consumers purchasing bitcoin from a fraudulent
exchange. Card holders typically aren't responsible for fraudulent
purchases charged to their credit card, raising the risk that card
issuers could be stuck with the loss.
Card companies have also cited worries around the lack of
transparency with bitcoin purchases that could subject them to
legal risk around anti-money-laundering obligations. That can
include concerns that the seller of the item is using the funds for
illegal activities.
"There's a host of issues," said David Nelms, Discover's CEO.
Among others, "we don't want to be responsible if someone buys
bitcoin and it drops 50% the next day."
But the move to crack down has raised the ire of bitcoin
investors. James Kinslow of Tucson, Ariz., earlier this month was
trying to buy about $100 worth of bitcoin through Coinbase, which
operates one of the largest bitcoin exchanges.
Mr. Kinslow said he already had an account with Coinbase, and
had previously used his Capital One credit card to buy bitcoin.
This time, however, he was blocked. "I think part of the agreement
is, you guys provide me with money, and I use it as I see fit," Mr.
Kinslow said.
Coinbase, which has allowed credit-card purchases since 2016,
said it is looking into Capital One's decision.
Visa Inc. and Mastercard Inc., the two largest U.S. credit-card
networks, generally don't allow card issuers to reject all purchase
transactions from a certain merchant unless it is illegal or the
issuers have concerns that include fraud or significant legal
risk.
American Express Co. allows card users to buy bitcoin, with some
restrictions. Consumers have to link their AmEx card to a specific
bitcoin wallet where they can load up to $200 a day and no more
than $1,000 a month.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com and
Paul Vigna at paul.vigna@wsj.com
(END) Dow Jones Newswires
January 25, 2018 11:33 ET (16:33 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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