Cryptocurrency has gone from something a few techies played with to an asset class that is now being taken seriously by more traditional investors. Elon Musk tweets about it, El Salvador, accepts Bitcoin as legal tender, and PayPal offers an option to pay for purchases using crypto.
For most people, figuring out how to trade crypto can be daunting.
However, they are familiar with using credit cards and like the immediacy of the transaction. This is particularly true given how volatile the markets are. For example, while a deposit or money transfer may take time, a credit card transaction is quicker.
Some banks and institutions allow you to buy cryptocurrency directly with their credit cards. This is risky and has some disadvantages, so some financial planners advise against it. Yet some investors in crypto do buy with credit cards.
How to Buy Cryptocurrency with a Credit Card
It’s a relatively simple process to use your credit card to buy cryptocurrencies. Here are the steps to make it happen:
- Make sure that the issuer of your credit card allows you to buy cryptocurrencies. You should also ask if the crypto purchases will be treated as regular or cash advances.
- Make sure that the cryptocurrency exchange allows credit card transactions. Not all of them do, and some only allow it outside the United States. One example of this is Coinbase, which allows users in Europe to use their credit cards but not American users of the exchange.
- If your credit card company and your crypto exchange allow cryptocurrency purchases with a credit card, you can enter your card’s information to make a payment. You can also set it up as your preferred payment method.
- When you make a transaction, select the cryptocurrency you wish to buy and the amount before finalizing your purchase.
- As with any credit card purchase, paying off the balance each month allows you to avoid paying interest.
Drawbacks of buying crypto with a credit card
While it may be relatively easy to buy crypto with a credit card, it can also be much more expensive than via a bank deposit or money transfer. In addition, many exchanges charge a premium price if you want to buy crypto coins using a credit card.
However, that isn’t even the worst part. Your credit card issuer likely considers cryptocurrency a cash equivalent, so they will charge you the fees and interest rates they would for a cash advance.
A Better Way to Buy Crypto with a Credit Card
Thanks to SoFi, there is now a cryptocurrency credit card. It is the first credit card that lets you put your points directly into crypto. When you use a credit card, 2% of your purchase can be directed towards buying crypto.
While this is different from the process described above, it has several advantages in transaction costs, as no fees are charged for converting your cashback into crypto. This makes it a great way to quickly increase your exposure to this asset class at a minimal cost.
