Cryptocurrencies have become increasingly popular. As investors become more interested in digital assets, many wonder how to buy Bitcoin, Ethereum, Dogecoin, or other crypto coins.
Once upon a time, you’d have to go through a thorough process to buy crypto. You’d need a hardware wallet and often navigate complex transactions. However, you can buy your digital assets quickly and easily with a credit card. But is this the right thing to do?
While the convenience appeals to many novices, the reality is that there are also downsides. These include the fact that most financial institutions will not allow you to buy crypto with their credit card.
American Express is one of the few companies that will allow you to do so. However, then you hit another problem – many crypto exchanges won’t accept credit cards and the few that do often don’t accept American Express.
How does a credit card work to buy cryptocurrency?
Therefore, using a credit card to buy cryptocurrency involves verifying the terms of both your exchange and your card. The general process is as follows:
• Open an account with a cryptocurrency exchange that accepts credit cards.
• Make sure that your credit card company allows you to use their card to purchase cryptocurrency.
• Go through the process to verify your account. You will typically need to upload a valid ID such as a passport or driver’s license.
• Once your identity has been verified, you can deposit money into the account. Some exchanges accept only the money deposited from a bank account, but some accept credit card deposits. This is why, if you want to use a credit card to buy cryptocurrency, you must choose an exchange that will allow you to do so.
• Go ahead and make your purchases using your credit card.
While the process seems pretty simple once you have set up a membership with an exchange, in reality, this strategy has plenty of pitfalls.
For example, the fees are often relatively high when using a credit card to purchase crypto. That is because most major credit cards treat this transaction as a cash advance with high fees. And interest rates can be pricey as well. But, of course, you also typically have no grace period, and the money used to buy crypto won’t count towards your rewards program. On the other hand, these transactions may also have lower credit limits.
An alternative to this approach is to use a credit card to accumulate crypto through a crypto rewards program.
For example, SoFi offers the first bitcoin rewards credit card that allows you to redeem purchases into crypto. It gives you 2% cash back that you can redeem directly into crypto using your SoFi investment account.
As the crypto market evolves, there is a good chance that investors won’t face such draconian penalties for buying their favorite digital assets with a credit card. However, for the time being, your best bet is innovative credit cards such as the one offered by SoFi that allow you to earn a little every time you use the card. SoFi also has a mobile app to make transactions painless.
