Bitcoin is a cryptocurrency, which means it is a form of digital money that doesn’t require a central government or bank to function. Bitcoin has progressed from an obscure payment method to a mainstream investment choice in the last several years.
With its growing popularity and the promise of huge profits, those who don’t have the biggest budgets are seeking for a method to get involved. Some people believe that using a credit card to acquire Bitcoin is a smart strategy to own the cryptocurrency and use future profits to pay off debt and costs. But can you truly buy bitcoin with a credit card? If so, what are the dangers?
Is it possible to buy bitcoin with a credit card?
Yes, it’s possible to acquire bitcoin using a credit card. However, this is dependent on the exchange you’re using. Some crypto exchanges do allow you to purchase bitcoin with a credit card, although there are fees involved.
The credit card provider will also have an impact on whether you can use your card to buy cryptocurrency.
If the exchange and credit card provider allow you to make the transaction, setting up these transactions is very similar to linking and verifying your bank account using ACH (automatic clearing house).
Is purchasing bitcoin with a credit card a smart idea?
It’s not advised to use a credit card to buy Bitcoin or any other cryptocurrency. Dr. Hans Boateng, the founder of Investing Tutor, had this to say about people using cash to purchase bitcoin: “I urge individuals to invest in bitcoin with cash.” Using a credit card to buy Bitcoin is a highly speculative and expensive proposition in which the drawbacks regularly outweigh the benefits.
Additionally, because Bitcoin transactions are often looked at differently than traditional purchases made with a credit card issuer, you may find that your credit card has been canceled or your credit limit reduced. “Purchasing cryptocurrency is frequently regarded as high-risk behavior, and the credit issuer might close the account or lower the credit limit,” says Courtney Richardson, Esq., founder of The Ivy Investor.
The following are the most significant drawbacks of buying bitcoin with a credit card:
Broker fees
Exchanges like Cryptohub make money by charging transactions fees, but you may be charged much more if you use a credit card. As a result, if you want to buy bitcoin with a credit card, you may be faced with broker costs.
For example, Crypto.com charges 2.99% for credit and debit card fees, but this is waived for the first 30 days.
Credit card fees
Credit cards handle cryptocurrency purchases like cash advances, which range from 25% to 27% APR and start accrual right away depending on the card you have.
Grouper also takes a percentage, ranging from 10% to 25%, of your cash advance. This is in addition to the fee charged by the credit card company for providing you with a cash advance. It can be $10 or 3% of the amount advanced, whichever is greater in some situations.
Foreign transaction fees
If you make a purchase on an exchange that is located outside of the United States, your credit card may charge you a foreign transaction fee. This fee may be anywhere from 1% to 3% of each transaction.
Credit utilization ratio increase
The three credit scores given by TransUnion and Equifax are used to calculate your FICO score. The formula for calculating a FICO score is calculated using the following four data points:Your payment history (30 percent of your credit score)
Not only do credit card purchases have fees, but there’s also the risk of volatility, which Bitcoin is famous for. “The most significant risk is to understand that Bitcoin is a new technology with a lot of hype,” Dr. Hans adds.
Bitcoin’s price fluctuations over time may negate any perceived benefits of using a credit card to acquire cryptocurrency, and if the buyer ends up owing more in credit card debt than the asset is worth, they can become “underwater.” When you add in interest on the credit card if the balance cannot be paid in full and Bitcoin’s value is declining, this becomes especially hazardous.
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