Many Americans are intrigued by the idea of investing in bitcoin and other cryptocurrencies, but doing so with a credit card is risky. Not only do investors face transaction fees when buying cryptocurrencies with a credit card, we all know that cryptocurrencies themselves are volatile.
However, cryptocurrency is definitely gaining momentum as an asset class and even as a speculative investment. In fact, a 2021 Bankrate.com survey found that millennials, in particular, feel comfortable owning crypto, with 15% saying they feel very comfortable and 34% reporting feeling fairly comfortable.
There is so much interest in cryptocurrencies, and some exchanges offer the convenience of buying cryptocurrencies with a credit card, so it’s good to know what you can and can’t do, as well as the potential pros and cons. Read on to find out how to buy cryptocurrencies with a credit card and the factors to consider before making this decision.
What you need to know about investing in cryptocurrency
Cryptocurrencies are virtual currencies that you can use to pay for goods and services in the same way that you can use dollars, euros or pesos. Their value fluctuates, so buying cryptocurrency one day does not mean that you will have the same amount the next day, week or month.
For example, in the first half of 2021, one bitcoin — the most famous cryptocurrency — was worth over $64,000. Today, the price is hovering around $38,000. When you buy cryptocurrencies, they are usually stored and tracked in a digital wallet until you are ready to sell them. “Blockchain” is a record of all completed cryptocurrency transactions.
Unlike other currencies, cryptocurrencies are not backed by governments or regulated by financial institutions. Cryptocurrencies also lack the FDIC insurance that protects the cash you keep in deposits in traditional banks. Some governments warn their citizens about the risks of investing in cryptocurrencies for this very reason.
However, some disagree, pointing out that the speculative nature of cryptocurrencies makes them an attractive component of a long-term investment strategy.
“Cryptocurrencies are very volatile; however, it also means they have a good chance of valuing them,” Kirill Bensonoff, a crypto advocate and entrepreneur who has been an active member of the Boston blockchain community, said in a previous interview. “If you have an appetite for risk, crypto should be in your portfolio.”
If you choose to buy cryptocurrency, you will need to find an exchange, many of which allow consumers to pay with a credit card. If you’re thinking of going this route, here’s what you need to know.
Can I buy cryptocurrency with a credit card?
If the question “Can I buy cryptocurrency with a credit card?” occurred to you, you should know that the answer is yes. In fact, many of the most popular cryptocurrency exchanges, including Coinmama and CEX.io, allow consumers to buy crypto with a credit card issued by Visa or American Express.
However, several major card issuers, including Bank of America, Chase, Citigroup, TD Bank, and Capital One, have banned the purchase of cryptocurrencies with their credit cards.
You may have better luck with smaller banks or credit unions that have not officially banned buying cryptocurrencies with a credit card.
How to buy cryptocurrency with a credit card
If you are ready to buy cryptocurrency with a credit card, you need to find a platform that allows you to do so and make sure you have the right credit card to facilitate the transaction.
For example, you can purchase it with an Alliant Visa Signature* card or a USAA® Preferred Cash Rewards Visa Signature®* card. There are other credit cards from smaller issuers that may work for buying cryptocurrency, although you may have to make a small test purchase to find out.
You can also purchase cryptocurrency with your favorite American Express credit card, although you may need to take extra steps to do so. For example, a platform called Paxful allows you to buy up to $200 worth of cryptocurrencies per day with an Amex gift card (which you can buy with an Amex credit card).
Pros and Cons of Buying Cryptocurrency with a Credit Card
Experts say that if you’re thinking about investing in crypto with a credit card, it’s important to do so with your eyes wide open. After all, there are potential pitfalls to be aware of every time you use a credit card to make a purchase, especially one as volatile as cryptocurrencies.
The pros of buying cryptocurrencies with a credit card include the ability to invest no matter how much money you have on hand and the ability to take advantage of the rewards you receive for your spending.
However, there are many downsides to buying cryptocurrencies with a credit card. First, the interest you owe if you don’t pay off the balance right away can eat into your investment income. If your credit card issuer charges a transaction fee – which many do – this can also rob you of profits. In addition, there is a chance of harming your credit score if you find that you cannot pay off your balance or make payments on time.
Some might think they can avoid credit card interest by using an introductory zero-interest offer, but that can also be problematic, Melinda Opperman, president of Springboard Nonprofit Consumer Credit Management, Inc., said in a previous interview.
“You need the investment to pay off quickly before the introductory rates expire, and you are facing those high rates,” Opperman said.
Another downside is that many crypto exchanges charge high maintenance fees. For example, CEX.IO charges an additional 2.99% for making cryptocurrency purchases with a credit card, while Bitstamp charges 5% on top of what your card issuer may charge. Meanwhile, Coinmama charges several fees for facilitating crypto transactions and also adds an additional 5% “momentum fee” for plastic payments only.
Fraud is also associated with cryptocurrencies. For example, crypto scammers have been known to trick their victims into buying crypto with a credit card before clearing their accounts and getting their account details in the process.
bottom line
Buying cryptocurrencies with a credit card might be a real possibility, but that doesn’t mean it’s a smart move. The thing is, crypto can rise or fall in value over time, but you will owe everything you charge your credit card, including credit card interest and transaction fees, no matter what.
If your goal is to create wealth with cryptocurrencies, you are probably better off saving up some cash to invest in advance. Paying for cryptocurrencies in plastic can be convenient, but the added expense makes the move prohibitively expensive and too risky for the average consumer.
*All Alliant Visa Signature Card and USAA Preferred Cash Rewards Visa Signature Card information has been collected independently by CreditCards.com. The Issuer has not provided the content and is not responsible for its accuracy.
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