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Buying bitcoin with a credit card is possible, but there are risks associated with it. The U.S. Securities and Exchange Commission (SEC) in September 2021 warned about the ongoing threat of crypto investment scams that can defraud investors of assets. While multiple cryptocurrency exchanges allow investors to buy bitcoin with credit cards connected to the Visa or Mastercard networks, it would be prudent for investors to know about the possible drawbacks and consequences.What Is Bitcoin?
Often described as “digital gold,” bitcoin is the oldest and largest virtual currency or cryptocurrency in the world. Conceptualized in October 2008 and first mined in January 2009, bitcoin uses blockchain technology to record and validate transactions in cryptographically secured ledgers, making it an anonymous and decentralized electronic payments system. Subject to wild speculation and price volatility, bitcoin is an investment asset that could help generate wealth for some investors.How to Use a Credit Card to Buy Bitcoin
Investors can use online cryptocurrency exchange platforms to buy bitcoin with a credit card. Some exchanges like CEX.IO allow users to directly purchase bitcoin with credit cards issued on the Visa or Mastercard network, and other cryptocurrency ecosystems may allow such transactions to occur indirectly through Simplex, a fintech service owned by Nuvei Corporation.When Is It Allowed?
An investor is allowed to use a credit card to buy bitcoin if the credit card and cardholder meet certain conditions.For example, the credit card must be eligible for international transactions, the cardholder must be enrolled in a 3-D Secure program, such as Visa Secure or Mastercard SecureCode, and the card must have sufficient available credit to complete the transaction when using the Simplex infrastructure to buy bitcoin. Cryptocurrency exchanges like Binance, Coinmama and Paybis use the Simplex infrastructure for processing credit card transactions. When Is It Not Allowed?
Investors are not allowed to use credit cards to buy bitcoin on a National Bitcoin ATM or Coinsource machine, as these machines only accept cash. Additionally, investors may not be allowed to use a credit card to purchase bitcoin online if the credit card was issued from an unsupported location. When buying bitcoin through the Simplex online payment service, for instance, the U.S. states of Hawaii and New York are not supported for these transactions.Simplex also says that credit card issuers could have their own cryptocurrency policies and “may decline your transaction on their end.” It also notes that “some banks require additional authorization for cryptocurrency purchases.”Fees Cardholders Can Expect
While purchasing bitcoin may be among the functions of credit cards, you can expect to pay a sizable fee when buying bitcoin via credit card. Simplex’s fees range from 3.5% to 5% of the transaction value, or a minimum $10 fee for smaller transactions. Cryptocurrency exchange platforms like CEX.IO and those that use Simplex technology also may charge their own fees upon users who purchase bitcoin with a credit card. In some cases, Simplex imposes a 13% transaction fee and warns that “some banks may place an international transaction charge or a cash advance charge on your card for payments made through us.” CEX.IO charges a commission to any user who deposits or withdraws bitcoin with a Visa or Mastercard payment method. The deposit commission in most cases is 2.99%. Meanwhile, withdrawals command a service charge and a greater commission, the amount of which varies by card type:- Visa:
- Service charge: Up to 2.5% plus $1.20
- Commission: Up to $3.80
- Mastercard:
- Service charge: Up to 1.8% plus $1.20
- Commission: Up to 1.2% plus $3.80
Furthermore, the company that issued your credit card also may apply their own commissions if you use that card to buy bitcoin through CEX.IO’s platform.The Risks of Buying Bitcoin With a Credit Card
Investing in cryptocurrency has inherent risks, including the risk of cyber theft, price volatility and technology failures. But buying bitcoin with a credit card can carry additional risks, including the potential for higher transaction fees and the possibility of lowering your credit score if the purchase pushes your credit utilization ratio too high. As mentioned above, buying bitcoin with a credit card could potentially carry an international transaction charge or a cash advance charge. Credit card terms may include cash advance fees with APR interest that accrues immediately, and these terms also may invite foreign transaction fees ranging between 1% and 3% of the purchase amount.If a small business wants to invest in bitcoin, the firm could explore several payment options, including a business credit card or business line of credit. The credit card vs line of credit debate, however, shows credit cards tend to command more extensive fees than lines of credit, so buying bitcoin with a line of credit likely poses lower risk than buying bitcoin with a credit card.Alternatives to Buying Cryptocurrency With a Credit Card
One alternative to buying bitcoin with a credit card is opening a credit card that generates bitcoin rewards. Visa Consulting & Analytics (VCA), the payments consulting arm of Visa, in a paper released in 2021 highlighted the “emerging trend” of fintech companies integrating digital currencies into loyalty and reward programs. “With more than $1 billion spent on cryptolinked Visa cards in the first half of 2021, it’s clear that the crypto community sees value in linking digital currencies to Visa’s global network,” VCA said.When you pick a credit card, you may consider applying for a card that generates bitcoin rewards on every purchase or cash back value that automatically converts to bitcoin.Opening a bitcoin rewards credit card may not be an option for consumers with bad credit or no credit. In that case, consumers may have an easier path obtaining a secured credit card that requires a refundable security deposit to “secure” the account or a subprime credit card that may involve an application fee. Some peer-to-peer finance platforms allow users to buy bitcoin with credit cards on the four major networks of Visa, Mastercard, American Express and Discover.The Takeaway
Whether you view bitcoin as digital gold or a speculative investment, it is a viable asset that can potentially build personal and corporate wealth over time. The price and value of bitcoin has fluctuated wildly since it launched in 2009, but that has neither prevented nor deterred people from wanting to own this asset. Buying bitcoin with a credit card is a potential option for investors looking to own the largest crypto by market capitalization worldwide. However, keep in mind that some credit card issuers may impose cash advance fees or foreign transaction fees upon cardholders who purchase cryptocurrency on the Visa, Mastercard, American Express or Discover networks. Applying for a credit card and getting approved is never a guaranteed outcome, and those with poor credit or no credit may have a more difficult time accessing new credit. Lantern by SoFi makes it easy to weigh your credit card options with its database of credit building cards.
Photo credit: iStock/Eva-Katalin
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About the Author
Sulaiman Abdur-Rahman
Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
