Before You Buy Bitcoin With a Credit Card, Read This

More people are looking for ways to buy Bitcoin with a credit card, with the cryptocurrency up 64% over the past month alone.

It’s hard to blame them. The Bitcoin price has soared more than 900% in 2017, far outpacing the 15.5% gains in the S&P 500 index.

Bitcoin hit an all-time high of $11,377 on the CoinDesk Bitcoin Price Index this week, before pulling back under $10,000.

Today, the price of Bitcoin is about $10,500, more than four times where it was trading in mid-July.

The latest surge – which took the Bitcoin price from under $6,000 to over $11,000 in two weeks – has inspired many investors to try to get on the cryptocurrency bandwagon any way they can.

That’s why U.S. Bitcoin exchange Coinbase added 300,000 new users over the Thanksgiving holiday week.

The new additions brought Coinbase’s account total to 13.3 million, according to Alistair Milne, co-founder and chief investment officer of Altana Digital Currency Fund – exceeding the 10.6 million brokerage accounts at Charles Schwab.

The jump in Coinbase accounts also coincided with a spike in Google searches for the phrase “buy Bitcoin with credit card,” which reached an all-time peak last week.

It turns out, it’s not all that hard to buy Bitcoin with a credit card – there are several ways to do it – but, as I’ll show you, this is not necessarily a sound strategy for investing in cryptocurrency.

Here are the best options for U.S. investors…

How to Buy Bitcoin with a Credit Card

Several exchanges allow customers to use credit cards to purchase Bitcoin:

  • Coinbase: There’s a reason Coinbase is the most popular on-ramp to Bitcoin for U.S. investors. It allows users to link their account to a credit card or debit card in addition to a bank account. Coinbase uses a verification process that requires a photo ID and test charges. And if you’re a high roller, note that Coinbase limits purchases of Bitcoin by credit card or debit card to $150 a week. There’s also an additional 3.99% fee for credit and debit card transactions on top of the 4% base fee for trades.
  • Coinmama: This exchange not only allows users to buy Bitcoin with a credit card, but it has much higher limits than Coinbase. You can buy $5,000 worth of Bitcoin per day and $20,000 per month. But the fees are a bit higher – an extra 5%. Also, you can’t store your Bitcoin at Coinmama, as you can with Coinbase. You need to set up a separate wallet before buying so you can direct Coinmama to send your purchased Bitcoin there.
  • CEX.IO: This London-based exchange is registered with the U.S. Treasury’s FINCEN (Financial Crimes Enforcement Network) and so has an even more stringent verification process. In addition to the usual verification steps, you have to send a photo of yourself holding the card, one of the card with an identification card, and a third of the ID card’s reverse with the payment card. But fees are significantly lower. The base trading fees on CEX.IO are lower than other sites (0.20% or lower). A credit card deposit is 3.5% plus $0.25. You can also withdraw U.S. dollars to your credit card when you sell your Bitcoin. And limits are high for verified accounts: $10,000 per day and $100,000 per month.
  • Bitstamp: One of the oldest and most reputable Bitcoin exchanges, Bitstamp announced it would accept payment by debit and credit cards from U.S. customers in May. Bitstamp has a detailed verification process much like those of the exchanges above. But it has base fees of 0.25% or lower (they decrease with the size of the transaction). Using a credit card incurs an additional 5% fee. Bitstamp’s main advantage is that it sets no buying limits for its verified users.
  • The Square Cash App: In November, Square launched limited cryptocurrency support on its mobile “Cash” app. Some users can use their debit card in the Cash app to buy and sell Bitcoin via a new screen users can access by swiping right from the “Cash Card” screen. For now, it appears to have no fees, although that will almost certainly change when the feature rolls out for everyone. It’s also unclear what the daily and monthly buying limits will be. Still, from what we know, it looks like this app will be a convenient way to buy Bitcoin with a debit card.

But while it’s relatively easy to buy Bitcoin with a credit card, here’s why you should think twice before doing it…

Before You Buy Bitcoin with a Credit Card, Read This

While more Bitcoin exchanges are making it possible to buy cryptocurrencies with credit cards, you may have noticed they also charge a premium for it. You’ll get more bang for your Bitcoin buck by purchasing your crypto via almost any other method.

More generally speaking, credit cards have become something of a trap for many average Americans – the 48% that carry a balance. And these balances are not trivial. Last year, WalletHub reported that the average U.S. family had credit card debt of $8,377.

The cards’ high interest rates mean these consumers are paying much more than the original cost of the goods and services they purchased.

For those who already owe thousands, using a credit card to buy Bitcoin is a very bad financial choice. Adding thousands of dollars to an existing debt with a high interest rate could put you in deeper financial jeopardy.

Sure, it’s tempting to use a credit card to “borrow” money to buy Bitcoin, because if it goes up 200%, or 500%, or 1,000%, you’ll be able to pay off what you originally spent and then some.

But it’s key to remember that Bitcoin also goes down. It’s possible it could crash to zero at some point. And the bank that holds your credit card won’t be sympathetic if your investment tanks. You’ll still have to pay back every penny you borrowed – with interest.

When you factor in the extra fees you’re being charged, it just doesn’t make sense for those who owe a lot on their credit cards to use them to purchase Bitcoin.

But what about those who pay off their credit card every month?

This group has more leeway in buying Bitcoin with a credit card, but even they can’t escape the higher fees the exchanges will charge them. Rewards card holders at least will get back some of the fees in the form of cash or points.

Finally, I’d like to add a piece of advice I repeat often in cryptocurrency stories – never invest more than you can afford to lose.

Don’t let the convenience of buying Bitcoin with a credit card obscure that basic bit of wisdom.

— David Zeiler

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Source: Money Morning