Here’s Why Bitcoin Purchases Using Credit Cards Are Getting More Expensive

February 6, 2018, 11:31 AM UTC

The payment processor MasterCard have reportedly reclassified customers’ cryptocurrency purchases as “cash advances,” leading to an extra 5% fee on purchases of virtual coins made via credit card.

TechCrunch, which first reported the move, said it was evidence that the incumbent payments giants are “scared” of their new-fangled rival. It also said Visa had reclassified cryptocurrency purchases, but the company said this was not true, and that it still “allows credit, debit and certain prepaid Visa products to be used to purchase cryptocurrency.”

People can of course still buy cryptocurrency by transferring bank funds, but that is a relatively slow method. The instant alternative requires a credit card payment, which apparently now incurs a total of 9% in fees when purchasing through Coinbase—an already-existing 4% credit card fee, plus the extra 5%.

MasterCard said it had over the past few weeks “clarified” to exchanges’ banks which transaction or merchant category code they should be using for cryptocurrency purchases. “This provides a consistent view of such purchases for both merchants and issuers,” the company said.

The move comes after a slew of banks decided to ban their credit cards from being used to buy cryptocurrencies. Bank of America started the trend Friday, followed by J.P. Morgan, Citigroup, Capital One, Discover, and Lloyds Banking Group.

The fear there is that people might buy bitcoin and other virtual coins on credit, then be unable to pay the banks back due to depreciation in the value of the cryptocurrencies.

A poll last month suggested that nearly one-fifth of all the people buying Bitcoin were doing so using their credit cards.

As for the notion that the big payment processors may fear cryptocurrencies as potential competitors, this could become an issue if and when cryptocurrencies recover from their current crash and settle into a less volatile pattern that encourages their use as virtual currency rather than as speculative assets.

Volatility in the Bitcoin market also bumps up the number of transactions, which—given the Bitcoin network’s congested nature—increases transaction fees in unpredictable ways.

This article was updated to reflect Visa’s denial that it has reclassified cryptocurrency purchases.