Apple launched a new credit card this week in partnership with Goldman Sachs and Mastercard, offering consumers 2% cash back on purchases made using Apple Pay (the company’s digital wallet service) and 1% on other transactions. There’s also 3% cash back on goods and services purchased directly from Apple.
Although Apple Card carries no annual fees or transaction fees, it does contain some fine print. In particular, Apple Card may not be used for cash advances or cash equivalents—a prohibition which includes cryptocurrencies, like bitcoin, according to the customer agreement posted on Goldman Sachs’ website.
In forbidding credit card purchases of crypto, Apple aligns itself with major credit card issuers, such as Bank of America, Capital One, JPMorgan Chase, and Citi. Since at least February 2018, all four have barred customers from using their credit cards to buy digital currency on Coinbase, a popular cryptocurrency exchange. Wells Fargo has also banned credit card purchases of crypto since June 2018.
Per Coinbase’s payment methods page, the exchange “no longer supports linking new credit cards.” A representative for the exchange did not reply immediately when Quartz asked which credit cards it still supports. Gemini, another popular crypto trading platform, only allows customers to fund their accounts through bank transfers, wire transfers, or deposits of cryptocurrencies.
By defining cryptocurrencies as a “cash advance” or “cash equivalent,” credit cards issuers determine how customers can (or rather can’t) access the crypto markets. They also suggest how consumers should perceive cryptocurrencies: as a medium of exchange. Credit card companies apparently don’t view bitcoin as digital gold, or a longterm investment, as many crypto collectors do.
Prohibiting crypto purchases could be a matter of safety (bitcoin’s price is notoriously volatile), but it also prevents consumers from gaming the cards’ reward systems. If you were allowed to buy—and instantly sell—thousands of dollars of bitcoin, theoretically, you could generate a cash-back return without incurring much risk. It would be roughly equivalent to printing money.
Of course, credit cards also carry the risk of default. In 2017, a survey of 672 bitcoin buyers by LendEDU found that 18% of respondents used a credit card to fund and purchase their digital currency. Of that group, 22% reported not paying off their balances after buying bitcoin—a small but not insignificant fraction.
Most credit card companies prevent users from gambling or purchasing stocks. These can become compulsive behaviors, and if unchecked, lead to financial ruin. However, it feels somewhat suffocating to be told what you can and can’t buy with your own money, even if it’s on credit. What really separates buying rare baseball cards from buying bitcoin?
Admittedly, even if both can be done online, the activities are different. Bitcoin’s fluctuations and immediate liquidity can lead to emotional and reckless decisions—more than a few people have lost their life savings trading crypto. Plenty have lost their shirts day trading stocks as well.
At the moment, there’s a wry saying floating around crypto Twitter: “Give a man a bitcoin and you’ll feed him for a year. Teach a man to trade crypto and you’ll destroy him for a lifetime.” However much you want to risk, it’s probably best if you do it with your own funds rather than credit.
“I remember asking [economist]Art Laffer how big this could be. The network value, or market cap, of Bitcoin was something like $5 billion. He said, ‘How big is the U.S. monetary base? There’s your answer.’ At that time, it was $4.5 trillion. I’m not going to tell you we’ll get there in the next five years, but we could get halfway there, from a network value of $175 billion today to $2 trillion.”
—ARK Investment Management CEO Catherine Wood
BITS AND PIECES
- Binance Customer Data Has Leaked: What We Know and What We Don’t (CoinDesk)
- Facebook hires Zook to lobby on Libra (Politico)
- Facebook’s Audacious Pitch for a Global Cryptocurrency (The New Yorker)
- The Federal Reserve announces plans for a real-time payments system that will be available to all banks (TechCrunch)
Please send news, tips, and greeting cards to email@example.com. Today’s Private Key was written by Matthew De Silva, and edited by Oliver Staley. Intellectuals solve problems, geniuses prevent them.