Buying cryptocurrencies could now incur a cryptocurrency card charge making instant cryptocurrency purchases financially unviable.

Major card companies, VISA and Mastercard have both reclassified how cryptocurrency are processed on their systems. Instead of a purchase, transactions on the crypto-exchange Coinbase are now categorised as a cash advance which will incur a 5% fee.

Most exchanges levy a fee on credit or debit card transactions, Coinbase, for example, charged a 4% transaction fee. As such, the new reclassification will mean investors will have to a pay 5% fee to their card company on top of the 4% Coinbase charge they already had to pay; taking 9% off the value of the initial investment made.

At present, crypto-investors are restricted to buying cryptocurrency instantly only with a credit or debit card. Although transferring funds from a bank account is an option which incurs lower transaction fees, it can take 3-5 days to complete.

In a statement, Mastercard said:

“Over the past few weeks, we have clarified to acquirers — or the merchant’s bank — the right transaction or merchant category code to use for these type of transactions (cryptocurrency purchases). This provides a consistent view of such purchases for both merchants and issuers.”

The move from a purchase to a cash advance also means there will be no interest-free grace period for credit card users. Essentially the same as using a credit card to take cash out of an ATM, the interest rates for a cash advance are significantly higher and can be up to 25.99%. They will also no longer count toward earning any card points.

Coinbase confirmed the reclassification in an email to its users last night: “the MCC code for digital currency purchases was changed by a number of the major credit card networks”.

In the United States, cryptocurrency is currently treated by the IRS as a taxable property. Mastercard and VISA’s decision to treat cryptocurrency as currency means the assets of US investors are currently subjected to two diametrically opposed classifications.

On Monday, the Lloyds Banking Group announced it would ban all cryptocurrency purchases on its credit cards, following a similar announcement from major US banks, JPMorgan & Chase, Bank of America and Citigroup.

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