Can you buy crypto with a credit card?
If you're wondering whether you can use a credit card to buy Bitcoin or other crypto, the answer is yes -- but not easily.
For one thing, you'll first need to find a cryptocurrency exchange. This is a business that facilitates the buying and selling of cryptocurrency, sort of like a stock exchange. You'll also need an exchange that allows credit card transactions. Many of the popular exchanges won't allow credit card purchases at all. The crypto exchanges that do take credit cards will charge you for the privilege, and those fees can add 3% or more to your transaction.
Of course, even if you're willing to pay the exchange's fees to use your card, your credit card issuer could still be a problem. Most major card companies have prohibited purchasing cryptocurrency at all.
Why? There a few main reasons card companies won't allow crypto purchases:
- Uncertainty: If you've spent much time researching crypto, you've undoubtedly seen the extreme ups and downs that Bitcoin has experienced over the last few years. Many other cryptocurrencies have had similar (though less publicized) histories. That volatility makes cryptocurrency stocks very risky, and banks are notoriously against risk. They won't let you use your credit line -- also known as "their money" -- to make dicey purchases.
- Poor regulation: Unlike most other financial products, there is very little regulation when it comes to cryptocurrency. The lack of regulation adds even more uncertainty to an already very risky product. It can also mean legal complications down the line, another thing banks strongly dislike.
- Cash equivalence: Another reason card issuers aren't big fans of cryptocurrency is that it can be traded for actual currency. This can bring up issues of potential money laundering, tax evasions, and other legal problems. This is the same reason many card issuers won't allow you to purchase money orders.
All this means you'll need to look hard for a credit card company that doesn't outright block cryptocurrency purchases. And if you're diligent enough to find an issuer that can be used to buy crypto, be prepared to pay for it -- again.
Remember point number three? Cryptocurrency purchases are treated as cash-equivalent transactions, which fall under the scope of a credit card cash advance. So, on top of the exchange's credit card fee, you'll likely be charged a cash advance fee, which can mean another 3% to 5% charge per transaction. Moreover, cash advances start accruing interest as soon as they hit your account, often at a higher-than-standard APR.
How does buying crypto with a credit card work?
The actual process of buying cryptocurrency with your credit card is similar to any other online purchase -- more or less:
- Find a credit card issuer that will allow you to purchase cryptocurrency.
- Find a cryptocurrency exchange that allows credit card purchases.
- Purchase your crypto.
As noted above, the hardest part will likely be finding a credit card issuer and a cryptocurrency exchange that allow such transactions.
Once you've chosen a credit card and a crypto exchange, you can make your purchase. The step-by-step process will vary based on the individual platform. In general, you'll start by opening an account with the exchange. Then, you can choose the currency and amount you want to buy, and tell the exchange where to send your currency. Finally, you'll input your card information and complete the transaction.
Since any card issuer that allows you to buy crypto will likely treat it as a cash advance, be sure to pay off your purchase as soon as it clears. This will limit the amount of credit card interest you have to pay on your transaction.
Pros and cons of buying crypto with a credit card
There are many cons to buying crypto with a credit card. In fact, there are so many cons, they completely wipe out any potential pros:
- May not be able to earn rewards
- May not count toward credit card sign-up bonuses
- Many credit card protections won't apply
- Hefty fees
For example, a typical pro of using your credit card is to earn rewards. However, since most issuers that allow crypto purchases classify them as cash advances, you probably won't earn credit card rewards. Similarly, cash advances don't usually count toward a sign-up bonus spending requirement, so you won't even get the benefit of a welcome bonus for your troubles.
This also means that many of the protections you'd normally get for purchases from your credit card won't apply. So don't expect to be able to file a claim to refund your crypto purchase if your currency loses value.
And, of course, there's the many, many fees. The crypto exchange will charge you 3% or more to use your card -- and yes, that's on top of whatever they charge for the trade in the first place. Then, the credit card issuer will probably charge another 3% or more for the cash advance fee, plus whatever interest accumulates before you pay off the transaction. That means you're likely paying at least 6% in fees just to use your card.
Other considerations
Beyond the fees and complications, the big consideration when buying cryptocurrency with a credit card -- or at all -- is the uncertainty of digital currencies. Over the last five or so years, cryptocurrency has gone from niche gimmick to trading floor buzzword. Part of what led to such a quick rise in fame was the extremely volatile nature of cryptocurrencies like Bitcoin.
Using a credit card to purchase cryptocurrency essentially means taking on debt for a very uncertain investment. If that investment doesn't pan out, you're still on the hook for your credit card debt. Moreover, you may wind up with interest or other fees that make your initial purchase all the more expensive to pay off.
Which leads us to utilization. Depending on how much crypto you charge (and how many associated fees you incur), your credit utilization -- how much of your available credit you're using -- could skyrocket. High utilization is a warning sign to issuers and credit scoring algorithms alike. As your credit utilization ratio rises, your credit score will sink.
All in all, buying crypto with credit cards is the ultimate example of can versus should. Can you buy crypto with your card? Sometimes. Should you buy crypto with your card? Absolutely not.
