Coinbase reports a subtle change in the way credit cards can buy cryptocurrencies. Instead of aligning the credit card payment as a credit transaction, the Merchant Category Code (MCC) now aligns to a Cash Advance transaction.
That has an enormous impact to the purchaser. As an example, if you have a typical Bank of America Cash Rewards Card, which might be underwritten at 14.24% for purchases, you would likely pay 28.24% for the cash advance transaction, plus, there is always the good old 3% transaction fee added on
“Recently, the MCC 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,” Coinbase wrote in a statement on Thursday.
The move comes as a number of bank and card issuers have announced that they would be reviewing changes to their policies around the purchases of crypto assets using credit cards, which has been a signature development that underlines the speculative hype around bitcoin
In my view, the upcharge is fair. Cryptocurrencies are speculative investments.
With all the ups and downs of bitcoin, and the lack of sovereign backing, I believe cryptocurrencies will not be investment grade assets in our lifetime (…that includes millennials!). I still stand by the quote posted in the NY Times in 2013 where I said: “Even though it’s got the cool factor to it, it’s still not a place to park your 401(k).”
It is still listed as the “quote of the week.”
Overview by Brain Riley, Director, Credit Advisory Service at Mercator Advisory Group
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