Like the gold rush in the 1850s and dot-com stocks in the 1990s, it appears that everyone wants to get their hands on cryptocurrency. Buying cryptocurrency with a credit card is doable, but it might be risky.
Cardholders should expect costs on both sides of a cryptocurrency and credit card transaction, as well as the risk of losing money quickly owing to unpredictable currency prices and high-interest rates.
It is best to verify with a credit card company to see if cardholders can purchase any form of cryptocurrency. American Express presently permits similar transactions under certain conditions.
In 2020, Bank of America altered its tune after a Reddit user released a screenshot of a letter they received stating that bitcoin transactions would be classified as cash advances. (It should be noted that Bank of America’s terms on this are still unclear.)
In addition to double-checking with their credit card company, cryptocurrency holders should look for a cryptocurrency exchange that accepts credit cards for deposits or purchases.
Some only accept bank direct deposits, cash deposits, or debit card purchases. Coinmama, CEX.io, and Paxful are all credit card-accepting exchanges right now.
Exchanges also have restrictions on the types of credit cards they accept.
Some exchangers may only accept credit cards from Visa or Mastercard. Paxful, for example, provides a global network of Bitcoin sellers who sell on the exchange website.
It is one of the few exchanges that now take American Express credit cards, however, approval on the exchange is also very dependent on the vendor chosen.
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Major credit card issuers in the United States may not allow cardholders to purchase cryptocurrencies with a credit card. Citibank, for example, barred cardholders from using credit cards to buy Bitcoin and other cryptocurrencies in 2018, citing the volatility of the market and the risk of theft. If a cardholder attempts to make a cryptocurrency purchase, some credit card issuers may charge a cash advance fee.
It should be noted that several large U.S. credit card issuers do not make information on whether or not cardholders can purchase cryptocurrencies easily accessible on their websites.
Call the number on the back of the card to talk with a representative. Enquire clearly, immediately, and exactly whether acquiring cryptocurrency is permitted, and, if so, what types of fees will be charged.
Some cryptocurrency exchanges, such as eToro and Coinbase, do not accept credit cards as payment.
Cardholders should anticipate paying fees to both the currency exchange and the credit card issuer.
Before making any purchases using an authorized credit card, determine the exact cost of each item and the monetary gain (or lack thereof) before incurring the charge.
If you use a credit card to buy or deposit cryptocurrency, the exchange may charge a commission and/or a service fee.
CEX.io, for example, is a cryptocurrency exchange where you can buy a variety of cryptocurrencies, including Bitcoin. Users can buy cryptocurrency with a Visa or Mastercard credit card, but there is a 2.99 percent commission fee with a minimum purchase of $20.
Depending on the exchange, sellers inside the exchange may also charge fees to consumers based on a variety of factors such as the vendor’s location, the purchase amount, and the type of credit card used.
Some credit card providers that allow cardholders to buy cryptocurrency treat the transactions as a cash advance (cash advances usually refer to when a cardholder uses a credit card to withdraw money from an ATM).
This has a number of drawbacks.
Let’s look at some common card clauses to see what kinds of fees a cardholder can face:
Cash advance fees
Some credit cards consider bitcoin purchases to be cash advances. This means that each cryptocurrency purchase will incur a cash advance fee.
A standard fee of $10 or 5% (whichever is greater) would be imposed. These fees are in addition to the vendor or exchange fees.
Cash advance interest rates
The majority of credit cards charge a higher Annual Percentage Rate (APR) for cash advances, often more than 25%.
This is a market-based variable interest rate. Interest begins to accumulate on the day the purchase is made and continues to accumulate until the credit is paid off.
In comparison, cardholders have up to 25 days to pay off a conventional credit card charge before interest begins to accrue.
No credit toward rewards or bonuses
Credit used to purchase crypto (and thus make a cash advance) typically doesn’t qualify for any purchase rewards nor toward spending that would normally apply to a sign-up bonus.
Lower credit limits
Cash advances frequently have a lower credit limit than the cardholder’s overall credit limit on the card.
Cardholders seeking to make large crypto purchases may be hampered by the cash advance terms and limitations.
Other credit card risks may include:
Foreign transaction fees
If the vendor is from a different nation and the credit card used levies fees for foreign transactions, a foreign transaction fee may be added to each bitcoin purchase.
High risk of fraud
There is a high danger of fraud if a vendor is not properly vetted and the cardholder provides critical information such as their name and credit card number.
High investment risk
Investing in cryptocurrency with credit can result in significant debt. Cardholders can accrue fees and interest that they may be unable to repay, substantially raise their credit utilization rate, or lose the value of their investment owing to a volatile crypto market.
Other Ways to Buy Crypto Using Credit Cards
The standard financial market evolves in tandem with the cryptocurrency market.
A few new credit card companies are offering Bitcoin or other cryptocurrencies as bonuses or prizes.
BlockFi, a newer card firm, for example, gives 1.5 percent Bitcoin incentives on every purchase. They also advertise Bitcoin welcome bonuses as well as further awards for trading and client referrals.
Most people will not be able to purchase cryptocurrencies with a credit card. Before purchasing cryptocurrency with a credit card, cardholders should evaluate the key downsides.
Buying cryptocurrency is frequently best achieved by direct deposits, debit cards, or wire transfers.
Credit card transactions are frequently accompanied by excessive fees, which lower the value of a good investment or cut returns by a substantial margin. Cardholders are also at risk of falling into significant debt that can be difficult to recover from.
If you must use a credit card, we recommend contacting a credit card representative to discuss the repercussions with a specific credit card issuer and looking for a bitcoin exchange with the best credit card rates.