Cryptocurrency is binary data that works as an exchange medium. Some people feel like it’s the wave of the future, and most people have at least heard of it.
Many different cryptocurrencies are hitting the market, and some of them, like Bitcoin, have exploded in value and popularity. Crypto is an exciting idea, and you may want to invest in some of it for this reason.
In many cases, you can buy crypto using a credit card. There are vital things you should know before you try it, though. We’ll talk about three of them right now.
1. Market Volatility
Before you buy crypto using a credit card, the first thing to understand is that its value can go up and down. It’s a bit like your credit score ranges and how they can fluctuate based on multiple factors. You could also compare it to a stock that rises and falls based on a company’s day-to-day activities and other less tangible reasons.
The difference between buying cryptocurrency with a credit card and purchasing a stable commodity is that you know exactly what you’re getting if you buy a commodity, i.e., a shirt. You might agree that the shirt is worth $30, so you buy it based on that assessment.
With cryptocurrency, however, you’re getting something with a value that is a lot more volatile. For instance, you might buy $500 worth of a particular crypto coin, and by the end of the week, it might be worth only half of that. You should take that risk factor into account.
2. Standard Fees and Interest Rates
Next, you should know that not all credit card companies regard using your card to buy crypto in the same way. Many of them will allow it, but some of them put buying crypto in the same category as getting a cash advance.
If you buy some crypto, that means the credit card company might charge you a standard fee, as well as their regular interest rate. If you have no issue with that, you can move forward. However, you might feel like these additional fees are prohibitive. The costs associated with buying crypto with a credit card can easily eat into your investment’s value if that’s the main reason you’re making this purchase.
3. Brokerage Fees
Probably the most straightforward way to get crypto these days is through a broker. There are many online brokers you can work with, and you can research them to see which ones seem the most credible.
The brokerage or exchange you utilize might accept different payment methods, including credit cards, for crypto purchases. No matter which method you use, you’ll almost always have to pay a trading fee.
If you use a credit card, though, the exchange or brokerage might charge you an additional fee on top of that. That fee is generally a percentage of the transaction amount.
Buy Crypto Carefully
If you decide to use your credit card to buy some crypto, understand that market volatility means the currency’s value can go up or down quickly. You should also know that the credit card company might charge you standard fees and interest rates, the same as if you get a cash advance. Also, watch out for the brokerage or exchange fees that usually come with using a credit card for a purchase.
Virtually anyone who works in the finance industry will suggest exercising some caution when buying crypto, with a credit card, or any other method. Like buying stocks, you can regard purchasing cryptocurrency as gambling.
It might pay off big if the one you select skyrockets in value. But you also may end up losing money if the one you choose tanks, and you’re forced to sell it at a loss down the line.