VISA and Mastercard apparently threw another obstacle into the path of bitcoin and other cryptocurrencies by introducing additional fees on cryptocurrency transactions.
While some cryptocurrencies are trying to recover from dropping as much as 70% from December 2017 highs and some bitcoin miners struggle to remain profitable, VISA and Mastercard are making it more expensive to buy and sell cryptocurrencies. Tech Crunch reported that Mastercard and VISA started charging additional fees for cryptocurrency transactions last week.
The fees are not technically new, but stem from reclassification of cryptocurrency transactions. Credit card and debit card transactions currently are the fastest and easiest options for purchasing cryptocurrencies. Cryptocurrency exchanges – such as Coinbase – have been charging the standard 4% credit card transaction fee for all cryptocurrency purchases. But the key word here is “purchases”.
It appears that Mastercard and issuers of VISA cards have added an additional 5% fee by reclassifying cryptocurrency transactions from “purchases” to “cash advances.” The additional fee is not the only additional downside for cryptocurrency transactions. Interest on cash advances compounds daily and starts accruing immediately without the grace period afforded to transactions classified as purchases. Additionally, the interest rates are higher for cash advances and cash advance transactions do not earn any reward points – a feature that is very important to many credit card users.
Transferring funds from a bank account to purchase cryptocurrencies is a viable and less costly option. However, those transaction are complex and can take up to five business days. The current cryptocurrency markets are highly volatile, and five business days can seem like eternity when an investor wants to buy something now. For instance, bitcoin gained 55% in the five days between December 1 and December 6, 2017. Conversely, Bitcoin lost 31% of its value over a five-day period between January 30 and February 5, 2018.
The battle for the future of money continues on multiple fronts. Governments and central banks are fighting to retain their monopoly on creating, managing and manipulating currencies. Cryptocurrencies are trying to change the status quo. Intermediaries – like VISA or Mastercard – are trying to buy some time to adjust their own business models and potentially avoid their own demise. It remains to be seen whether traditional currencies manage to retain their supremacy, whether cryptocurrencies develop into the new standard or whether a new technology emerges to supplant both current contenders.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.