Can I Buy Bitcoin With a Credit Card?
- You can buy bitcoins with a credit card, but it depends on the cryptocurrency exchange you are using.
- Buying bitcoins with a credit card may incur fees from both the company and the cryptocurrency . exchange.
- You could end up owing more on your credit card than your bitcoin is worth if the price drops.
Bitcoin, which made its debut in 2009, is a cryptocurrency, a digital form of money that exists without a government or central bank. In recent years, bitcoin has gone from being an obscure payment method to a mainstream investment option.
With its growing popularity and lure of massive returns, investors who may not have the biggest budgets are looking for a way to get in. To some, using a credit card to buy bitcoin seems like a smart way to own the cryptocurrency and use future earnings to pay off debt and fees. but can you really buy bitcoin with a credit card? if so, what are the risks?
Reading: Can you buy bitcoin with a credit card
if the credit card issuer and exchange you chose allows you to make the purchase, the process to set up these transactions is very similar to the process to link and verify your bank account through ach (automated clearing house) .
these are the main disadvantages of buying bitcoins with a credit card:
Cryptocurrency exchanges make money through transaction fees, but using a credit card can charge you even more. so you may have to pay broker fees if you choose to buy bitcoin with a credit card.
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For example, crypto.com allows credit card purchases and charges 2.99% credit and debit card fees, but this is waived for the first 30 days.
credit card fees
Credit cards typically treat cryptocurrency purchases as a cash advance which, depending on the card you have, could be anywhere from 25% to 27% APR and would start accruing immediately.
This is in addition to the fee for using the credit card issuer’s cash advance. in some cases it can be $10 or 3% of the cash advance, whichever is greater.
commissions for foreign transactions
if an exchange takes place outside the us. In the US, your credit card may also add a foreign transaction fee for each purchase. this fee could range from 1% to 3% per purchase.
increased credit utilization ratio
There are several factors that make up your credit score. One of these factors is your credit utilization ratio, which makes up 30% of your credit score. buying bitcoin can deplete your available credit, which could lower your credit score. Even if the value of bitcoin drops, your credit utilization remains the same.
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Quick Tip: Your credit utilization ratio is the amount of revolving credit you’re using, divided by the total amount of credit you have available. it is recommended that you keep your credit utilization below 30% of the credit balance.
fees are not the only risk of buying bitcoins with a credit card: volatility is a major factor that bitcoin is known for. “The most important risk is understanding that bitcoin is a new technology with a high level of speculation,” said Dr. Hans says.
Bitcoin has had large price swings over time, which can negate the perceived advantages of using a credit card to buy cryptocurrency, and can also leave the buyer “underwater” if they end up paying more on the coin. credit card debt than on assets. it’s worth it. This becomes especially dangerous when factoring in credit card interest if the balance cannot be paid in full and the bitcoin price is falling.
credit cards that offer bitcoin rewards
While using a credit card to buy bitcoins may not be the best idea, there are some credit cards that can help you earn bitcoin rewards for typical day-to-day purchases. Keep in mind that even with a bitcoin rewards card, your benefits may decrease if you’re paying late fees and interest on the balance.
- bitcoin blockfi credit card: with this credit card, all purchases earn a percentage in bitcoin. if you meet a certain spending threshold, you can get a higher rate.
- sofi credit card: in april 2021, sofi was the first company to redeem reward points directly into cryptocurrencies through its sofi invest app.
- brex credit card: this is a credit card for business owners and rewards cardholders up to 8x in bitcoin or ethereum.
- venmo credit card: In a recent company announcement, venmo will enable a new feature that allows venmo credit card holders to use the monthly cash back in their venmo account to purchase automatically the cryptocurrency of your choice, with no transaction fees.
- crypto.com rewards visa: crypto.com offers a range of credit cards ranging from 1% to 8% in rewards depending on the card.
Quick Tip: You might also consider using your favorite credit card with cash back rewards and using that cash to buy bitcoins. If debt is managed responsibly, you can avoid many of the fees attached to credit cards for cryptocurrency purchases.
the end result
While it is possible to buy bitcoins with a credit card, it is not the most sensible financial decision given the risk of the asset and the fees. Not only do these fees reduce your potential earnings, but they can also affect your credit score if your purchase is large. “Use cash to buy, dollar cost averaging, and look for other ways to get rewarded for crypto,” Richardson says.
See also: Is Cryptocurrency Really an Investment for the Long Term? | The Motley Fool