Everyone these days seems to have some bitcoin or cryptocurrency rattling around in their mobile wallets. This may be an exaggeration, but it certainly seems that way.
1 in 10 Americans (as per latest statistics) is a significant amount, and many are anxious about losing out on another considerable price increase.
Using a credit card when you don’t have the money to make a significant investment might be enticing. Ultimately, you can settle it back with your cryptocurrency profits.
However, using a credit card to buy cryptocurrency might be pretty expensive. It’s usually best to keep your credit card in your pocket until you know the total cost better.
Is it possible to purchase cryptocurrency using a credit card?
While certain investment platforms, such as Robinhood, enable you to buy cryptocurrencies instantly via their online portal or mobile app, many individuals use dedicated exchanges.
Make sure to keep in mind that while you may use credit cards to buy cryptocurrency, not all exchanges allow them.
Coinbase, America’s largest cryptocurrency exchange, is included in this list. Coinbase only accepts bank ACH (automated clearing house) transfers, debit cards, wire transfers, and PayPal as payment options in the United States.
Several exchanges, like Coinmama, CEX.IO, and eToro, take credit cards.
However, the fact that you may use a credit card to purchase cryptocurrency does not always indicate that you should. This is why.
What is the process of purchasing cryptocurrency with a credit card?
You must first select a payment method to purchase cryptocurrencies when depositing into an exchange. After that, you’ll be able to exchange your fiat currency for cryptocurrency.
Using ACH (linking your bank account) to fund your account is often the most cost-effective and, in some instances, free. Credit cards, on the other hand, are a different story.
They’re easy to use, but there’s a price to pay for that flexibility.
Fees for using a cryptocurrency exchange
There are several methods by which cryptocurrency exchanges make money. When you trade, most of them collect a percentage of your profit. No matter what payment option you use, this is always the case.
However, when you buy with your credit card, you are charged credit card fees in addition to the standard exchange trading expenses.
Fees for using a credit card vary from one exchange to the next. Before purchasing with your credit card, research the fees your particular exchange charges.
Using a credit card on Coinmama, for example, will cost you:
- Spread on currency exchange: 2%
- Commission charges: up to a maximum of 3.9 percent
- Credit card charges: 5%
You may not know how much you lose until you compare the trading price to the exchange rate.
What if you’d want to acquire some Bitcoins? A $1,000 bitcoin investment with Coinmama would cost the following:
- The exchange rate would be $20
- Commissions of $39 are charged (for non-loyalty members)
- The $50 credit card charge
In other words, it would take a 10.9% return on investment to break even on these expenses.
However, exchange costs are only one piece of the puzzle, and it only gets worse.
Fees for cash advances
Other prominent American credit card issuers, such as American Express, Chase, Citi, and Capital One, regard crypto transactions the same way they would a cash advance.
In addition to the costs charged by the exchange, your bank will additionally charge you for the cash advance.
For example, with Chase and Citi, cash advances cost $5 or 10% of the amount borrowed. Therefore, if you invest $1,000 in bitcoin, you will be subject to an extra cash-advance cost of $100 on top of the exchange fee of $109.
Put another way, using a credit card means losing more than a fifth of your investment.
Since there is no grace period for cash advance transactions, interest begins to accrue the instant you complete the transaction.
The lesson here is to contact your credit card provider and find out how they treat crypto purchases before you make a purchase.
Additional costs
Your bank may charge a foreign transaction fee of around 3% if you use a credit card to acquire cryptocurrency from exchanges outside the United States.
Checking the location of the exchange before making a transaction is therefore recommended.
You may avoid international transaction fees with a card like the Chase Sapphire Preferred or the Capital One Venture.
The daily quota
The amount of cryptocurrency you may buy using a credit card on some exchanges is limited daily. For instance, the daily limit for deposits made with a credit card on the Bitpanda exchange is around $3,050.
You are responsible for monitoring the daily restriction imposed by the exchange and the limits placed on your card.
The advantages and disadvantages of purchasing cryptocurrency using a credit card
Advantages
Using a credit card to purchase cryptocurrency has no practical advantages.
For the most part, credit cards come with perks such as reward points and insurance. Credit card payments are treated as cash advances, meaning any rewards are forfeited.
Disadvantages
Using a credit card comes with a slew of additional charges. Other payment methods, such as ACH transfers, are not subject to these charges. After paying all these costs, you will need to make significant progress if you want to see a return on investment that is more than zero.
Other things to take into account
Thinking twice about using your credit card to buy cryptocurrency would be best.
Here are some other factors to consider:
Fraud
There are still a lot of people who are entirely unfamiliar with the notion of buying cryptocurrencies online. Fraudsters can prey on them because of this. Educating yourself on typical cryptocurrency scams is essential before getting involved.
Fake cryptocurrency exchanges masquerading as real websites are one such fraud. Although your credit card’s fraud protection should protect you if you are the victim of online credit card theft, you should exercise caution and avoid it in the first place.
Credit card debt
Cryptocurrencies may be fun, but they’re also incredibly volatile investments. Don’t put money at risk you can’t afford to lose by investing it. Chances are you can’t afford to lose if your only means to buy cryptocurrency is to rack up credit card debt.
Not only is it dangerous, but taking out a loan to acquire cryptocurrency might damage your credit score. Your credit score takes a hit if you have a large debt on your credit card.
Taking up a mortgage, vehicle loan, or personal loan may be affected by your crypto-related debts, which might indirectly impact the interest rates you meet the criteria for.
Limitations
Credit card transactions are handled differently by several exchanges. Do your research before making any purchases, and you won’t have to deal with unpleasant surprises.
For example, if you buy Bitcoin on eToro with your credit card to transfer it to a safe hard wallet right away, you won’t be able to do it. Why? Because you cannot move purchases made with a credit card off the exchange for 60 days.
A credit card reward for cryptocurrency
A credit card is not the best way to buy cryptocurrency. However, you may still use your card to purchase crypto through various alternative channels.
A cryptocurrency rewards credit card is one option. Like regular rewards cards, you get bitcoin instead of cash back or airline miles.
You may also use a credit card that gives you cash back and then use the money you get back to buy cryptocurrency.
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