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. COF +1.51% 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 ServicesDFS +1.03% ’
move in 2015 to effectively prohibit purchases of digital currencies with its
Bank of America Corp.BAC +2.19% 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., C +2.92%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 , TD -0.09% said
that as a result of security measures some bitcoin transactions aren’t being
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
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
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
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
Visa Inc. and MastercardInc., 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.
Click here for the original article from The Wall Street Journal.