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Like gold in the 1850s and also .com stocks in the 1990s, it seems everyone is trying to get their hands on crypto. Purchasing cryptocurrency with a credit card is possible but can be a dangerous undertaking. Cardholders can expect fees from both sides of a transaction involving cryptocurrencies and credit cards, plus face the potential to lose money quickly due to volatile currency values and high interest rates.


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When Purchasing Cryptocurrency With a Credit Card Is Allowed

It’s best to check with a credit card issuer to find out whether it allows cardholders to purchase any type of cryptocurrency. American Express currently allows such transactions with a few strict terms. Bank of America recently changed its tune in 2020 when a Reddit user shared an image of a letter they received that stated cryptocurrency purchases would be treated as cash advances. (Note: Bank of America’s terms on this are still unclear.)

In addition to double-checking with a credit card company, crypto holders should also look for a cryptocurrency exchange willing to accept credit cards for deposits or purchases. Some only allow direct deposits from banks, cash deposits or debit card purchases. Coinmama, CEX.io and Paxful are all exchanges currently accepting credit cards.

Limitations also exist as to what types of credit cards are accepted by exchanges. Some exchanges may only take Visa or Mastercard credit cards. Paxful, for example, has a variety of Bitcoin vendors from around the world who sell on the exchange website. It’s one of the few exchanges currently accepting American Express credit cards, but acceptance on the exchange also greatly depends on the selected vendor.

When Purchasing Cryptocurrency With a Credit Card Is Not Allowed

Major U.S. credit card companies may not allow cardholders to purchase cryptocurrency with a credit card. Citibank, for example, blocked cardholders from using credit cards to purchase Bitcoin and other cryptocurrencies in 2018 fearing its volatility and the potential for fraud. Some credit card companies may even issue cash advance fees if a cardholder attempts to make a crypto purchase.

Note that some major U.S. credit card companies don’t make information on their websites easy to find regarding whether or not they allow cardholders to purchase cryptocurrencies. It’s best to call the number on the back of the card and speak to a representative. Ask clearly, directly and specifically whether or not purchasing crypto is allowed, and, if so, what types of fees will be incurred.

Some cryptocurrency exchanges don’t accept credit cards as payment, such as eToro and Coinbase.

Types of Fees Cardholders Can Expect

Cardholders can expect to pay fees to both the exchange the currency is purchased with and the credit card issuer. Before making any purchases with an authorized credit card, research the exact cost for each purchase and what the monetary benefit will be (or will not be) before incurring the charge.

Cryptocurrency Exchange Fees

The exchange may charge a commission fee and/or a service fee for using a credit card to purchase or deposit crypto. For example, CEX.io is an exchange offering a handful of cryptocurrencies for purchase, including Bitcoin. Users are allowed to purchase crypto using a Visa or Mastercard credit card, but U.S. cardholders are subject to a 2.99% commission fee with a minimum purchase of $20.

Depending on the exchange, vendors within the exchange may also design fees for purchasers depending on a few factors, like where the vendor is located, the purchase amount and what type of credit card is used.

Credit Card Company Fees

Some credit card companies allowing cardholders to make crypto purchases treat the purchases as a cash advance (cash advances usually refers to when a cardholder uses a credit card to withdraw money from an ATM). This has several disadvantages.

Let’s use common card terms as an example for the types of fees a cardholder can incur:

Cash advance fees: Some cards treat a cryptocurrency purchase as a cash advance. This means that each crypto purchase is subject to a cash advance fee. A typical fee of either $10 or 5% (whichever is greater) would be charged. These fees are in addition to fees charged by the vendor or exchange.Cash advance interest rates: Most cards have a higher Annual Percentage Rate (APR) for cash advances—over 25%. This is a variable interest that changes with the market. Interest will start to accrue on the day the purchase is made and will continue to accrue until the credit is paid off. By comparison, cardholders have up to 25 days to pay off a regular credit card charge before accruing any interest.No credit toward rewards or bonuses: Credit used to purchase crypto (and thus make a cash advance) typically doesn’t qualify for any purchase rewards nor toward spending that would normally apply to a sign-up bonus.Lower credit limits: Cash advances often have a lower credit limit than the cardholder’s overall credit limit that applies to the card itself. Cardholders hoping to make big crypto buys may find themselves limited by the cash advance terms and limitations.

Other credit card risks may include:

Foreign transaction fees: A foreign transaction fee may be applied to each crypto purchase if the vendor is from a different country and the credit card used charges fees for foreign transactions.High risk for fraud: There’s great fraud potential if a vendor isn’t properly vetted and the cardholder gives away valuable information such as name and credit card number.High investment risk: Investing in crypto using credit can lead to serious debt. Cardholders can quickly accrue fees and interest that they may later be unable to pay back, can dramatically increase credit utilization rate or can lose their investment value due to a volatile crypto market.

Other Ways to Buy Crypto Using Credit Cards

As the cryptocurrency market evolves, so does the standard financial market. There are a few start-up credit card issuers who offer Bitcoin or other cryptocurrencies as bonuses or rewards. For example, BlockFi, a younger card company, offers 1.5% Bitcoin rewards for every purchase made. They also boast Bitcoin welcome bonuses and more rewards from trading and client referrals.

Bottom Line

Using a credit card to purchase cryptocurrency won’t make sense for most. Cardholders should consider the major disadvantages before deciding to buy crypto using a method involving a credit card. Purchasing crypto is often best accomplished using direct deposits, debit cards or wire transfers.

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Credit card purchases often come with high fees that lessen the value in a good investment or reduce returns by a significant margin. Cardholders also face a high risk of burrowing themselves into deep debt that can be hard to come out of. For those who insist on using a credit card, we advise contacting a credit card representative to discuss what the repercussions will be with a specific credit card issuer and look for a cryptocurrency exchange with the best credit card rates.