Investors who wish to purchase cryptocurrency with credit cards issued by Mastercard (MA) and Visa (V) are facing additional fees. In the short term, these steps could negatively impact the cryptocurrency industry with respect to these investors.
A market participant who wishes to initiate a cryptocurrency purchase can either use a credit card or debit card. Alternatively, the investor can initiate a direct transfer of funds from the bank.
Because bank transfers can be time-consuming, some market participants prefer using credit and debit cards. Coinbase accepts these purchases using credit or debit cards, and it transfers a 4.0% credit card transaction fee to the buyer.
Crypto purchases tagged as a cash advance
Any transaction that is executed on Coinbase will be tagged as a cash advance rather than a purchase. However, the different institutions impose different fees for these transactions. Using a credit card makes the purchase more expensive for the buyer, as the card merchant could charge a 5.0% fee along with the 4.0% transaction fee.
Moreover, purchases tagged as cash advances wouldn’t be subject to the no-interest grace period that consumers received for credit card purchases. So, transactions tagged as cash advances would be subject to daily compounded interest. These purchases typically incur higher interest rates for these purchases, and consumers wouldn’t earn any reward points or miles.