Why are the fees charged for buying bitcoin so expensive?
Bitcoin may not be as pricey as it was at its all-time high, but it's still the most valuable cryptocurrency, both price-wise and by market capitalization. The use of Bitcoin as a payment currency is also on the uptrend, with many online shops and merchants now accepting payments done via BTC. It is easier to use and can be accepted anywhere around the world. Countries, like Japan, have started streamlining the use of Bitcoin as a legal transaction currency. It, therefore, goes without saying that many people look to buy Bitcoin for these reasons.
But there is a problem; the fees charged when buying bitcoin are getting ever so expensive.
We have several ways you can buy BTC from exchanges around the world. We have exchanges that provide opportunities for people to meet and buy/sell bitcoin in a peer-to-peer platform. However, the most common method of buying bitcoin is through online exchange platforms. On these platforms, you can access Bitcoin through payment methods like bank accounts, wire transfers, and PayPal.
Until recently, the most common and easily accessible method of buying Bitcoin was with credit cards. Major exchanges provided instant buying when a client was using credit or debit cards. Although there are several credit card issuers, most of the cards are either from MasterCard or Visa.
Fees charged on most exchanges was the standard 4% levied on all credit card purchases. However, that changed drastically early February, this year. Buying bitcoin with a credit card has become very expensive, meaning the average spender finds it unfeasible.
Why is buying bitcoin with credit card expensive?
Initially, buying bitcoin with your credit card could cost you 4% of the total buy. Now you pay an additional 5% levy to make it an insanely huge 9% total fee on every transaction you complete. That's not an ideal situation. So, you will naturally ask why credit card to bitcoin is that expensive.
Here's the explanation as to why purchasing Bitcoin with Credit Cards is getting more expensive
For starters, MasterCard and Visa, the leading credit card payment processors were reported to have reclassified the purchase of cryptocurrency as
"Cash advances". This action resulted in an introduction of a further 5% fee on all cryptocurrency purchases via credit card. And this includes bitcoin.
And, therefore, the payable fee for buying Bitcoin shot up by 5%. What does this mean for you and me? If we wish to purchase BTC at any of the exchanges, we should be ready to pay at least a hefty 9% fee, sometimes rising to over 10% if you factor in hidden charges on some of the sites.
The move by both MasterCard and Visa could spell the end to the popularity of bitcoin purchases using credit cards. By reclassifying how cryptocurrency purchases are processed, the two giant companies have made the modus operandi of exchanges change. Now you pay the "old" 4% service to the exchange and the "new" fee of 5% to credit card merchants.
Interest charges cropping up
The unfortunate classification of credit card transactions involving Bitcoin and other cryptocurrencies as cash advances also came with an added disadvantage: these transactions became subject to several "varied fees" charges that are associated with Cash advances. And that's where the issue of interest crops in.
So, if you are buying Bitcoin with your credit card, your transaction is subject to an interest rate levied by the company. This simply means that the moment you complete a transaction, you are liable to pay interest on that very transaction. In other words, you are likely to pay the standard 9% credit card transaction fee and possibly an even higher charge of interest. If this doesn't equal to exorbitant, then I don't know what else does.
Extra expenses could be a result of keeping competition in check.
Since the story broke in early February, it seemed as if the move by the credit card giants was an orchestrated response to the threat posed by cryptocurrencies as alternative methods of payment systems. Bitcoin has been working on its protocol aimed at making it be able to handle thousands of transactions per second. Though currently not the fastest, the implementation of its Lightning Network protocol payment layer would pose a threat to the dominance of the mainstream payment systems.
However, the issue of cryptocurrencies competing against MasterCard and Visa isn't a factor at the moment. We know that Bitcoin and all the altcoins are highly volatile and that many users view them as speculative assets rather than trusted virtual currencies. If Bitcoin did stabilize, became faster, and transaction fees dropped to zero, then it could offer competition to Visa's 45,000 transactions per second.
The Banks could also be contributing to the rising fees levied on Bitcoin purchases.
Several banks have in the last few months been aggressive in showing their disdain towards cryptocurrency purchases. It has been widely reported that banks are against the use of credit cards in relation to buying Bitcoin.
The banning of Bitcoin buying via credit cards by banks impact fees indirectly. Banks are increasingly becoming unfriendly towards cryptocurrencies- many exchanges find it difficult to set up Bank Accounts, while some are closed and so on. People also find it hard to buy Bitcoin because the other option of PayPal is in itself tricky, while bank transfers take days to effect.
Finally, buying Bitcoin may be getting ever more expensive due to the charges levied by Exchange sites in the process of completing a transaction. For instance, Coinbase charges you a "conversion fee", whose total charge depends on your location and the payment method you are using. Additionally, you may be charged for the transfer of funds to or from the buyer's bank account.
In case you are still wondering why it is so expensive to buy Bitcoin, I suggest you consult your Credit card issuer or find out everything about the fees your preferred exchange charges.
Bitcoin may not be as pricey as it was at its all-time high, but it's still the most valuable cryptocurrency, both price-wise and by market capitalization. The use of Bitcoin as a payment currency is also on the uptrend, with many online shops and merchants now accepting payments done via BTC. It is easier to use and can be accepted anywhere around the world. Countries, like Japan, have started streamlining the use of Bitcoin as a legal transaction currency. It, therefore, goes without saying that many people look to buy Bitcoin for these reasons.
But there is a problem; the fees charged when buying bitcoin are getting ever so expensive.
We have several ways you can buy BTC from exchanges around the world. We have exchanges that provide opportunities for people to meet and buy/sell bitcoin in a peer-to-peer platform. However, the most common method of buying bitcoin is through online exchange platforms. On these platforms, you can access Bitcoin through payment methods like bank accounts, wire transfers, and PayPal.
Until recently, the most common and easily accessible method of buying Bitcoin was with credit cards. Major exchanges provided instant buying when a client was using credit or debit cards. Although there are several credit card issuers, most of the cards are either from MasterCard or Visa.
Fees charged on most exchanges was the standard 4% levied on all credit card purchases. However, that changed drastically early February, this year. Buying bitcoin with a credit card has become very expensive, meaning the average spender finds it unfeasible.
Why is buying bitcoin with credit card expensive?
Initially, buying bitcoin with your credit card could cost you 4% of the total buy. Now you pay an additional 5% levy to make it an insanely huge 9% total fee on every transaction you complete. That's not an ideal situation. So, you will naturally ask why credit card to bitcoin is that expensive.
Here's the explanation as to why purchasing Bitcoin with Credit Cards is getting more expensive
For starters, MasterCard and Visa, the leading credit card payment processors were reported to have reclassified the purchase of cryptocurrency as
"Cash advances". This action resulted in an introduction of a further 5% fee on all cryptocurrency purchases via credit card. And this includes bitcoin.
And, therefore, the payable fee for buying Bitcoin shot up by 5%. What does this mean for you and me? If we wish to purchase BTC at any of the exchanges, we should be ready to pay at least a hefty 9% fee, sometimes rising to over 10% if you factor in hidden charges on some of the sites.
The move by both MasterCard and Visa could spell the end to the popularity of bitcoin purchases using credit cards. By reclassifying how cryptocurrency purchases are processed, the two giant companies have made the modus operandi of exchanges change. Now you pay the "old" 4% service to the exchange and the "new" fee of 5% to credit card merchants.
Interest charges cropping up
The unfortunate classification of credit card transactions involving Bitcoin and other cryptocurrencies as cash advances also came with an added disadvantage: these transactions became subject to several "varied fees" charges that are associated with Cash advances. And that's where the issue of interest crops in.
So, if you are buying Bitcoin with your credit card, your transaction is subject to an interest rate levied by the company. This simply means that the moment you complete a transaction, you are liable to pay interest on that very transaction. In other words, you are likely to pay the standard 9% credit card transaction fee and possibly an even higher charge of interest. If this doesn't equal to exorbitant, then I don't know what else does.
Extra expenses could be a result of keeping competition in check.
Since the story broke in early February, it seemed as if the move by the credit card giants was an orchestrated response to the threat posed by cryptocurrencies as alternative methods of payment systems. Bitcoin has been working on its protocol aimed at making it be able to handle thousands of transactions per second. Though currently not the fastest, the implementation of its Lightning Network protocol payment layer would pose a threat to the dominance of the mainstream payment systems.
However, the issue of cryptocurrencies competing against MasterCard and Visa isn't a factor at the moment. We know that Bitcoin and all the altcoins are highly volatile and that many users view them as speculative assets rather than trusted virtual currencies. If Bitcoin did stabilize, became faster, and transaction fees dropped to zero, then it could offer competition to Visa's 45,000 transactions per second.
The Banks could also be contributing to the rising fees levied on Bitcoin purchases.
Several banks have in the last few months been aggressive in showing their disdain towards cryptocurrency purchases. It has been widely reported that banks are against the use of credit cards in relation to buying Bitcoin.
The banning of Bitcoin buying via credit cards by banks impact fees indirectly. Banks are increasingly becoming unfriendly towards cryptocurrencies- many exchanges find it difficult to set up Bank Accounts, while some are closed and so on. People also find it hard to buy Bitcoin because the other option of PayPal is in itself tricky, while bank transfers take days to effect.
Finally, buying Bitcoin may be getting ever more expensive due to the charges levied by Exchange sites in the process of completing a transaction. For instance, Coinbase charges you a "conversion fee", whose total charge depends on your location and the payment method you are using. Additionally, you may be charged for the transfer of funds to or from the buyer's bank account.
In case you are still wondering why it is so expensive to buy Bitcoin, I suggest you consult your Credit card issuer or find out everything about the fees your preferred exchange charges.
