Buying Cryptocurrencies with a Rewards Credit Card: Bad Idea?

Cryptocurrencies are all the rage nowadays (Kodak is getting in on the action, for crying out loud!). Let’s face it: Most people don’t understand cryptocurrencies or the technology behind them. What everyone gets is that investing in them early on ended up being lucrative for a lot of people.

Hell, I bought my first Bitcoin shares two months ago and the price has doubled! Naturally, travel hackers are attracted to lucrative opportunities like this, especially if points and miles are involved. After all, Coinbase accepts credit cards for cryptocurrency purchases. But is this a bad idea?

The Limitations

It’s important to note that Coinbase users are limited to purchasing $400 worth of cryptocurrencies a week with credit cards. Verified users have an increased purchase limit of $750 per week. Some users report even higher credit card purchase limits.

Maxing out these limits would result in a minimum of 20,800 – 39,000 points per year. That’s a pretty nice stash of points and miles, especially if you can turn a profit earning them. There are, however, less risky ways to generate even more points and miles. I wouldn’t depend on cryptocurrencies as my main mile-earning tool. After all, if the market crashes, can you afford to pay off those credit cards?

The Fees

Speaking of credit cards, Coinbase imposes a 3.99% credit card transaction fee, which is insanely high. In fact, paying your mortgage or rent through Plastiq would result in lower fees than buying cryptocurrencies with a credit card. Of course, your mortgage doesn’t turn a profit like Bitcoin can, but it’s worth being aware of both the risk and reward. Speaking of reward, since I got started with this two months ago, the price of Bitcoin doubled, Ethereum nearly tripled and while Litecoin has seen some bumps, it has still more than doubled in value.

The Risks

That being said, there’s no guarantee that you (or I, for that matter) will turn a profit investing in cryptocurrencies going forward. After all, cryptocurrencies are unregulated and volatile. Most people can’t even explain why a single Bitcoin is now worth over $14,000. This game is ripe for a downturn and I imagine if its bad, a lot of people will be left broke, unable to understand why it happened. Or maybe the experts are wrong and cryptocurrency prices will triple and we’ll all end up in the same yacht club. Whatever may happen, it’s important to be prepared for the worst case scenario.

So What Should You Do?

Is buying cryptocurrencies with a credit card to earn miles a bad idea? If you’re investing more than you can pay off in case of a crash, then yes. But if you haven’t done your due diligence and are just following the herd, that’s the type of thinking that gets people into trouble. The reward of airline miles is certainly not worth the risk of losing money you can’t afford to pay back.

Bottom line: It could either turn out aces or go horribly wrong. Be prepared for both scars and don’t invest more than you can bear to lose. I think as long as we all keep this mind and keep track of our investments carefully, we won’t experience any massive devastation if the market crashes.

Full disclosure: I’ve included my Coinbase referral link in this post. Feel free to use mine, a friend’s, or your friendly T-Mobile employees’ (which, incidentally, is how I got referred).

[Image: David McBee/Pexels]