Facebook’s Libra drama too much for you? Here’s another way to get into cryptocurrency

cryptocurrency coins

You’ve likely heard the contentious news about Facebook launching its own cryptocurrency, also known as Libra, and the privacy concerns around the subject. CEO Mark Zuckerberg faced hours of questioning by the US House Committee on Financial Services on Oct. 23 about Facebook’s business practices, reinforcing heavy skepticism about the new digital money. 

The idea behind Libra is to disrupt existing payment services, such as Bitcoin, by allowing cryptocurrency transactions to occur instantaneously within Facebook’s apps and with nearly zero fees. If all goes according to plan, the currency will be offered to 2.4 billion Facebook users in 2020.

So, why does it matter? The evolution of cryptocurrency has sparked the attention of consumers over the last few years. Whether it concerns Facebook’s virtual currency project Libra or new investors increasing their bets on Bitcoin, cryptocurrency is regularly touted as the currency of the future and continues to grow in popularity. If you’re just getting started with building a portfolio, you might be wondering how you can buy in.

Bitcoin, the most popular cryptocurrency, and other cryptocurrencies are purchased through an exchange, and they all have different rules on how you can pay for your investment. You might be wondering whether you can buy crypto with a credit card and the short answer is yes. But before you charge cryptocurrency to a credit card, there are a few things to know first.

Not every bank allows you to buy crypto with a credit card

Cryptocurrency is by nature a risky investment for the investor, but there’s also a certain amount of risk to the bank if you’re charging your purchase. Cryptocurrency scams, for example, can result in chargebacks that the credit card company ends up paying for. Scammers made off with $1.7 billion in 2018 alone.

To minimize the potential for losses, a number of banks have enforced a ban on charging cryptocurrency to a credit card altogether. As of August 2019, the list of U.S. banks that give charging crypto a thumbs-down includes:

  • Bank of America
  • Capital One
  • Citigroup
  • Discover
  • J.P. Morgan Chase
  • Wells Fargo

Does that mean you’re completely shut out of buying cryptocurrency with plastic? Not necessarily, since not every bank has banned the practice. 

Some banks may allow you to purchase crypto with a debit card. The catch there is that debit cards have fewer built-in fraud protections. If you happen to be targeted by a scam or a fraudulent cryptocurrency seller, your credit card could offer more protection in terms of limiting liability for those charges. 

You may pay a steep fee to use your credit card

Assuming your credit card company or bank allows you to use your card to invest in cryptocurrency, that doesn’t mean it’s free. The cryptocurrency exchanges can charge service or convenience fees to make an initial deposit into your account to complete your transaction. 

The fee can vary from one exchange to another but some can charge as much as 6.9% to use your card. That’s on top of the trading fee you’ll pay to buy (or sell) cryptocurrency, plus any withdrawal fees the exchange charges to transfer money out of your trading account. 

Also, keep in mind that there could be other fees involved. For example, if you’re buying through an overseas-based exchange, you may pay a currency conversion fee. Your card could also tack on a foreign transaction fee to anything you charge. 

Cryptocurrency purchases may be treated as a cash advance

Using your credit card to buy cryptocurrency can also trigger another fee, known as a cash advance fee, not to mention a higher interest rate depending on how your card issuer codes the transaction. 

If it’s treated as a regular purchase, then you may not have an issue. You can run into a pricier situation, however, if your credit card company decides that it meets the guidelines for a cash advance instead.

In that scenario, you may get hit with a cash advance fee and pay the cash advance APR. And unlike purchases which allow a grace period, the interest starts accruing on cash advances from the moment you make them. 

Chase is currently the target of a lawsuit involving several cardmembers who used their card to charge cryptocurrency prior to the ban. They argue that the charges were treated as purchases at first, then switched to cash advances. 

That lawsuit is still ongoing but a separate lawsuit involving a similar scenario with State Farm Bank sided with the bank. So, if you’re going to use your credit card to charge digital currency you may want to call beforehand to find out how those purchases will be coded.

The other downside of having a cryptocurrency transaction treated as a cash advance is that you wouldn’t earn any rewards on the purchase. That’s important to know if your goal is to score some miles, points or cash back when buying crypto. 

How to buy cryptocurrency with a credit card

The actual process of buying cryptocurrency with your credit card isn’t that difficult. Generally, here’s what the process involves:

  • You create an account with the exchange you want to purchase cryptocurrency through.
  • Next, verify your account and provide proof of ID.
  • Link the credit card you want to use to your account. 
  • Decide which cryptocurrency you want to buy and how much, and where you want your cryptocurrency to be deposited.
  • Review the transaction details and confirm to make the purchase.

That’s really it, but there are a few final things to keep in mind when using a credit card to purchase crypto. 

First, choose the right card. Look for one that allows cryptocurrency purchases and doesn’t categorize them as cash advances. Bonus points if your card lets you earn rewards on the purchase. If you’re in the market for a new card, check out our trending rewards cards.

Next, be aware of any surcharge you’ll pay to use your credit card for the purchase. Also, be on the lookout for any currency exchange fees the platform charges if you’re buying from a company that’s outside the U.S. In that scenario, you’d want to use a card that has no foreign transaction fee. 

Have a strategy for paying off your cryptocurrency purchase. While you may be buying crypto with the hope of seeing it grow in value, you also have to weigh credit card interest in the  mix. So know how long it’ll take you to pay the purchase off and how much interest you might pay in the meantime.

Finally, learn how the cryptocurrency platform stores your personal and financial information. Facebook’s Libra, for example, is facing scrutiny over data privacy because it hasn’t detailed how it will obtain users’ consent, only that personal data will be shared to combat fraud. When using a cryptocurrency platform, check its security encryption and any additional security features, such as multi-factor authentication. If that information isn’t readily available on the website, call customer service to get the answers you need.