Bitcoin has been on a rollercoaster ride over the past few years. The price of BTC has experienced significant bouts of volatility and growth, reaching a low of around $US16,000 in late 2022 before recovering and hitting a new all-time high of over $US70,000 in March this year.
While the renewed interest from retail and institutional investors, alongside he SEC’s approval of 11 spot BTC Exchange Traded Funds (ETFs) in the US earlier this year, has contributed to Bitcoin’s recent success, it’s crucial to understand that investing in cryptocurrencies carries inherent risks. As with any investment, there’s no guarantee of a return or break-even point, and you could potentially lose a significant amount of money.
The Australian consumer group CHOICE continues to advocate for better consumer protections in light of the ongoing volatility in the crypto market. The Federal Government is well aware of the need for regulation, and is reportedly moving forward with legislation later this year to better protect consumers, including forcing exchanges to have an Australian Financial Services Licences (AFSL) that affords certain protections.
If you’re aware of the risks and still want to buy bitcoin, however, here’s how you do it using a credit card.
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How to Buy Bitcoin Using a Credit Card: Step by Step
1. Sign Up to a Reputable Crypto Exchange
The first step to buying bitcoin with a credit card is to choose a reputable cryptocurrency exchange that operates in Australia. Selecting a trustworthy exchange is crucial to ensure the safety of your funds and personal information. Look for exchanges with a solid track record, strong security measures, and positive user reviews. Some well-known exchanges include Binance, Coinbase, Kraken, and Coinspot.
Before signing up, confirm that the exchange accepts credit card payments, as not all platforms offer this option.
To create an account on your chosen exchange, you’ll need to complete a Know Your Customer (KYC) process, which is a mandatory requirement for compliance with Australian authorities. This process involves submitting proof of identity and address, such as a driver’s licence or passport, and a utility bill or bank statement.
The exchange will verify your documents to ensure the legitimacy of your account and to prevent fraudulent activities. The Australian Tax Office (ATO) also collects this information to ensure crypto investors are reporting their crypto taxes correctly.
2. Fund Your Account
Once you’ve signed up for an account with an exchange, you’ll need to add funds to it. Not all providers in Australia allow you to use their credit cards to buy crypto.
When buying crypto with a credit card, there are some key things to keep in mind:
- Buying crypto with a credit card will typically incur higher fees on the exchange side. Bank transfers and debit cards typically have much lower fees.
- On the card issuer side, the transaction will almost certainly be treated as a cash advance, which can come with a host of other fees, immediate interest charges and other consequences.
- Aside from the additional fees, buying crypto with a credit card is typically not recommended due to the potential financial risks involved.
If you do buy bitcoin with a credit card, you should try to pay off your balance as soon as possible to minimise the fees it will attract.
3. Place an Order
Within the platform you’re using, navigate to the bitcoin market and enter the amount you’d like to invest. Unless you’re investing north of $US70,000, you’ll be buying a part of one bitcoin. If bitcoin’s value were at $US70,000 and you invested $1000, for example, you’d own 1.42% of a bitcoin. Remember that bitcoin is divisible up to 100 million units.
4. Securely Store your Bitcoin
You can store your bitcoin on your exchange, however, if you are security conscious, you may prefer to transfer your bitcoin off the exchange into a private wallet. If you decide to self-custody your bitcoin, you will need to decide whether you want to use a ‘hot’ or ‘cold’ wallet. Both options have their pros and cons, but it is generally accepted that ‘cold’ wallets are the most secure option.
Bear in mind that there may be fees to pay for withdrawing your bitcoin from the exchange, and depending on what wallet you go for, you’ll need to keep safe your access codes or risk being locked out of your own holdings.
How to Sell your Bitcoin
You can also sell your bitcoin via a crypto exchange, either immediately using a market order or when it hits a certain price, using a limit order. Once sold, you can transfer the money back to your bank account—although in some cases you’ll have to wait a couple of days before you can withdraw it.
If you make an overall profit selling bitcoin, then you’ll be liable to pay capital gains tax (CGT). However, as the Australian Taxation Office (ATO) points out, you may be able to reduce capital gains costs using the 50% CGT discount if you have held the crypto asset for longer than 12 months. Check with your accountant for more details.
This article is not an endorsement of any particular cryptocurrency, broker or exchange nor does it constitute a recommendation of cryptocurrency or CFDs as an investment class. Cryptocurrency is unregulated in Australia and your capital is at risk. Trading in contracts for difference (CFDs) is riskier than conventional share trading, not suitable for the majority of investors, and includes the potential for partial or total loss of capital. You should always consider whether you can afford to lose your money before deciding to trade in CFDs or cryptocurrency, and seek advice from an authorised financial advisor.
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Frequently Asked Questions (FAQs)
Can I buy Bitcoin with a credit card straight away?
You can buy crypto with your credit card straight away, assuming that the exchange you are on accepts credit cards. You will have to complete a verification process first, which is standard, but then you are on your way. Take note: many banks view credit cards as advance transfers and charge higher fees. Also be sure to monitor how much you spend on your card, as taking on debt to attempt to make money off a volatile asset such as crypto will lead you into trouble.
Are there fees for using your credit card to buy crypto?
Yes as most credit card companies in Australia regard crypto purchases as a cash advance so you are likely to pay a higher interest rate. Don’t forget, either, that you may also face surcharges and a brokerage fee.
What is the easiest way to buy bitcoin?
The easiest way to buy bitcoin is through a reputable cryptocurrency exchange that supports a variety of payment methods, such as credit cards, debit cards, and bank transfers. To get started, simply create an account on the exchange, complete the necessary identity verification process, and choose your preferred payment method. Once your account is set up and funded, you can buy bitcoin with just a few clicks. Keep in mind that while credit card purchases may seem convenient, they often come with higher fees compared to other payment options.
Can I buy bitcoin at the ATM with my credit card?
Yes, it is possible to buy bitcoin at some ATMs using a credit card. These specialised ATMs, often called bitcoin ATMs, allow you to purchase bitcoin by inserting cash or using a credit or debit card. However, not all bitcoin ATMs support credit card transactions, and those that do may charge higher fees compared to traditional cryptocurrency exchanges.
