From crypto exchanges that collapse overnight to extreme price volatility, cryptocurrency investing is riddled with risks. But the payment method you use to purchase crypto can increase your risk of loss even further.
Most exchanges allow you to buy cryptocurrency using a variety of payment methods, including debit cards, ACH transfers from your bank, PayPal, or even credit cards. If credit seems like the obvious choice, you may want to think again, since your creditor might block the purchase, or even process it as a high-interest, high-fee cash advance loan.
"Other than co-signing for someone you don't know, I can't think of a riskier idea than investing in anything, including crypto, using a credit card," says John Ulzheimer, credit expert and President of the Ulzheimer Group.
Can you buy crypto with a credit card?
In short, yes you can buy crypto with a credit card. Some of the most popular cryptocurrency exchanges allow you to make purchases with credit cards when you set up your payment method in your account.
While purchasing cryptocurrency with a credit card might seem like the most convenient and secure way to make your purchase, the transaction may not be as simple as you'd think.
Each trading platform has unique stipulations around credit card use. Before buying, you'll need to see if your credit card is accepted on the exchange, determine if the coin you want to buy can be purchased with a credit card and see if your credit card issuer allows crypto purchases. If your credit card has a Mastercard logo, for example, there's a chance your purchase could be blocked.
Cryptocurrency exchanges that allow credit card purchases
- Binance
- Coinbase (no longer allows users to add new credit cards to their accounts)
- Crypto.com
- EToro
Cryptocurrency exchanges that don’t allow credit card purchases
- BlockFi
- Gemini
- Kraken
"Many card issuers won't let you use credit cards to buy crypto, but you can always circumvent the process by taking a cash advance from your card and using the cash to buy whatever you like," Ulzheimer says. In other words, you can fund your crypto account by taking a cash advance loan from your creditor, and then use the funds in your account to purchase crypto.
Even if you don't want to use a cash advance loan for your crypto purchase, some credit card issuers will automatically process the transaction that way, including American Express. Alternatively, you could buy crypto using a credit card issued by the trading platform, like the Gemini Mastercard or a Crypto.com VISA.
But Lee Bratcher, president of the Texas Blockchain Council, says that's a bad idea. "I would certainly never recommend that anybody use a credit card to buy crypto, and I'm of the opinion that a crypto platform that deals in Bitcoin and digital assets should not be issuing credit cards," Bratcher says, noting that payment options like this are profitable for exchanges but costly for investors.
How do you get crypto with a credit card
Each platform has a slightly different process for buying cryptocurrency with a credit card, but these are the steps you can generally expect:
- Register your account or log in. If you're setting up a new account, you may have to complete an identity verification process before you can begin making purchases.
- Choose the cryptocurrency you want to buy. Select the coin you want and choose your investment amount, and make sure you can purchase that particular coin with a credit card.
- Choose a credit card as your payment method. You may have to complete a credit card verification process before you can complete the purchase. Through some exchanges the process takes several days.
Pros and cons of buying crypto with a credit card
If using a credit card still seems like a good option for buying crypto, there's a chance you haven't calculated the true cost. "Investors should take a significant amount of time to educate themselves before making an investment decision," advises Bratcher. "They should understand that leveraged credit is not the avenue through which to get started with bitcoin or other digital assets."
Before proceeding with a credit card as your payment method, here's what you should consider:
Pros
Protection for your bank accounts. It's often recommended that you use credit rather than debit or a bank transfer for any purchase, since credit cards aren't linked to your personal assets. In an industry fraught with security issues, the extra security is worth considering.
But according to Bratcher, credit might still be a poor solution. "My personal preference is to send an ACH transaction to the platform" he says, since there are sufficient policies to protect a debit or ACH purchase, and fraudulent transactions can be refunded in a timely manner.
Convenience. If the exchange allows credit card purchases, using your card could be just as convenient as any other payment method. According to Binance, it takes the same amount of time—only a few seconds—to complete a purchase with either a credit card or debit card. Through Coinbase, transactions made with debit cards or U.S. dollars (from your funded account) are both processed instantly.
Cons
Credit card transaction fees. Cryptocurrency exchanges typically charge several fees for each transaction, including a 1% to 2% transaction fee. But when you use a credit card, they add a credit card processing fee as high as 3.75% and you might pay an additional fee based on your pairing. On top of that, your creditor may charge their own processing fee.
High APRs.There are several ways to purchase crypto, including with a debit card, a bank transfer or through an online payment system like PayPal. In other words, it's easy to avoid paying interest on your crypto purchase. If you use a credit card, however, you elect to attach interest charges to your purchase.
The average credit card APR is currently above 19%, but if your creditor treats the transaction as a cash advance loan, your APR could be twice as high. Plus, you'll have to deal with the following drawbacks of using a cash advance:
- Creditors charge a fee as high as 5% of the transaction amount.
- There's no grace period, meaning interest charges start accruing immediately.
- You're not likely to earn credit card rewards on the purchase.
- Promotional APR offers (like an 0% introductory purchase or balance transfer APR) do not apply to the transaction.
It's also worth noting that many creditors advise against using cash advances unless you're in a financial emergency.
The takeaway
There's a reason some creditors won't let you buy cryptocurrency with their cards. On top of the volatility of crypto, using credit adds more unnecessary risk to your investment.
Unfortunately, Bratcher says that high-risk payment methods will continue to emerge in the crypto sector. For example, buy-now, pay-later loans can already be used to buy crypto on certain exchanges. The best way to avoid expensive transactions and reduce your risk is to continue educating yourself about how to safely invest in crypto.
