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Why You Shouldn’t Use a Credit Card to Buy Cryptocurrency

Why You Shouldn't Use a Credit Card to Buy Cryptocurrency

Cryptocurrency may frequently be purchased with a credit card. However, it is expensive and may increase the risk you already assume by include a volatile cryptocurrency asset in your portfolio. If you don’t pay off your balance right away, you’ll be charged fees by your credit card company and the cryptocurrency exchange you use, plus you’ll accrue high interest debt.

The amount you invest should be limited to what you believe you can lose safely, advises Lauren Anastasio, CFP, director of financial counseling at Stash, an investing, banking, and education platform. “Crypto is still very volatile without any promise of return,” she adds. “I would hate to see someone making significant credit card deposits in the hopes of receiving sizable returns on their cryptocurrency investment just to lose money due to credit card interest and fees.”

Here are the specifics of purchasing cryptocurrency with a credit card and what you should know before doing so.

Can You Purchase Crypto With A Credit Card

It is occasionally feasible to purchase cryptocurrency with a credit card, but this ultimately depends on the cryptocurrency exchange you’re using to invest in and the company issuing your credit card.

Credit card payments are accepted by a few cryptocurrency exchanges, including Coinmama, CEX.io, and Paxful. However, a lot of them do not, including Coinbase and Gemini, which NextAdvisor lists as two of the top cryptocurrency exchanges. The conditions and costs associated with accepting credit cards can differ greatly among exchanges. For instance, the cryptocurrency exchange Coinmama adds a 5% credit card fee on top of the transaction fees for buying or selling cryptocurrencies. In addition to the additional fees your credit card incurs, Binance charges a 2% fee for credit card usage.

The costs are frequently higher than those of ACH bank transfers and other types of payment.

The acceptance of cryptocurrency purchases by your credit card company is the other thing to think about. Your purchase will most likely be handled as a cash advance.

Cryptocurrency purchases are accepted and treated as cash advances by credit card companies like American Express, Chase, Capital One, and Citi. According to John Taylor Garner, the creator of the rewards-based credit card app Card Curator, “There are no known banks that do not charge a cash advance fee for purchasing cryptocurrencies with a credit card.”

Most credit cards have cash advance fees, which are normally around 5% of the advance with a minimum of $10. Additionally, cash advances have higher interest rates and no grace period, so even if you intended to pay off your credit card debt in full before the due date, interest will start to accumulate on your bitcoin transactions the moment you charge them.

Therefore, while using a credit card to purchase cryptocurrency may be conceivable, doing so will most certainly result in you paying a number of high-cost fees to both the crypto exchange and the company that issued your credit card.

Benefits of Using a Credit Card to Purchase Crypto

Convenience is the main advantage of using a credit card to purchase cryptocurrency. Since you need details like your routing and account numbers, making ACH transfers from your bank account might be laborious. It might be simpler than approving a bank transfer if you frequently carry your credit card in your wallet.

Another factor to take into account when choosing a card over a bank transfer, according to Anastasio, is security. “Whenever your information is hacked, you can quickly have a new card issued with a new number; this is far quicker and easier than trying to change the information on your bank account.”

Although few credit card issuers enable you to earn points or cash back on cash advances, rewards could potentially be possible benefits. Additionally, the transaction costs associated with funding cryptocurrencies with a credit card would quickly offset whatever advantages you might have.

Risks Associated with Credit Card Crypto Purchases

In general, cryptocurrency is dangerous. It’s simple to lose money, and many people do.

It can be considerably riskier if you want to purchase cryptocurrency using a credit card rather than cash since you don’t have the money to do so. We strongly advise only using capital you aren’t afraid to lose while investing in cryptocurrencies. You might want to think twice before purchasing any cryptocurrency if you don’t have the funds in your bank account to support your investment.

If you want to invest in cryptocurrencies, you should do so fully aware of the possibility that you could lose money, either immediately or over time. This is due to how volatile cryptocurrencies are. Nobody has any idea what will happen to cryptocurrency assets and their worth in the long run. The timing of your purchases and sales will determine whether you make a profit, and adding credit card fees to the equation will only make things more difficult.

Just as an illustration, the price of one bitcoin was a little over $7,200 in January 2020, to a record-breaking high of over $68,000 in November 2021, and then fell back to around $30,000 per coin by May 2022.

Consider what would happen if you used your credit card to purchase a significant amount of cryptocurrency in November 2021, paid all applicable fees and interest, and then witnessed a 50% decline in the value of your investment over the next six months. The value of your cryptocurrency wouldn’t even come close to covering the entire cost, so you would still be responsible for the enormous credit card payment.

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