Buying Bitcoin with Your Credit Card: A Bitcoin Primer

Unless you’ve been living under a rock, it’s hard not to hear about Bitcoin. Bitcoin is the hot topic around watercoolers these days. Is it legit? Will it hit a new record – or go bust? These are just some of the questions being asked now that Bitcoin has gone mainstream.

Bitcoin isn’t just popular at the office. It’s popular online, too. The search term “buy Bitcoin with credit card” is on the rise on Google, as everyone looks to cash in on the cryptocurrency craze.

Billionaire Wall Street icon Warren Buffett once said, “never invest in a business you cannot understand.” Indeed, cryptocurrency is a complicated topic. Let’s take a closer look at Bitcoin and how the digital currency works.

What is Bitcoin?

We’re going to simplify things a bit.

Bitcoin is a digital currency or cryptocurrency. Some like to think of it as “computer cash.” Bitcoin is one of the world’s first decentralized digital currencies. It’s a peer-to-peer currency without a central bank or government holding or regulating it. At any given time, its value is determined within the market in which it trades. Gold trades in a similar fashion. (This is where a lot of people go nuts. Gold has many uses in both consumer and industrial goods, while many view cryptocurrency as “worthless”.)

Bitcoin is called digital currency for a reason. No physical currency actually exists. It exists purely in cyberspace. There’s a huge network of computers purely dedicated to Bitcoin, running special software to mine it and determine how much Bitcoin is out there, its value and who it belongs to. This information is then used to maintain ledgers available to the public.

How do you Buy Bitcoin

Bitcoin and other cryptocurrencies are traded on various online exchanges such as coinbase.com, and many others.

These exchanges accept many ways to load funds into your account. Wire transfers and linking a bank account are generally the preferred methods. On many exchanges, Bitcoin can be purchased with your credit card. Generally there is an additional surcharge to buy Bitcoin with a credit card. For example, Coinbase charges a 3.99% fee for purchases with a credit or debit card.

Bitcoin is held in virtual wallets and is easily accessible from your mobile device and PC. As with any type of investment the change in supply and demand affects the value of Bitcoin. There are currently 16.7 million Bitcoin in circulation.

Is Bitcoin Risky?

Bitcoin has passed a number of important milestones in the last year. The first ever Bitcoin futures contract started trading earlier this month, marking the cryptocurrency’s debut on a major U.S. stock exchange. Some major retailers have started accepting Bitcoin as legal tender. In fact, you can use Google Maps to find the closet retailer that accepts it. But it isn’t without its risks.

Bitcoin may be legal, but the government of Canada still doesn’t recognize it as an official currency. Bank of Canada Governor Stephen Poloz is on record saying that Bitcoin is more of a gamble than investment. But just because Bitcoin isn’t an official currency, doesn’t mean you don’t have to report it on your taxes. If you use Bitcoin to pay for something, the rules for bartering apply, according to the CRA. Also, if you use Bitcoin as an investment or commodity, you have to report any capital gains or losses.

Bitcoin is not for the faint of heart. It’s volatile. After starting the year under $1,000, Bitcoin is up over 1,500 percent so far in 2017. In fact, Bitcoin has climbed 300 percent in the last four weeks alone!

The Bottom Line

Before investing in Bitcoin, my best advice is to ask yourself how much money you’re comfortable losing. When investing in Bitcoin, just like the stock market, you’re competing against the world’s smartest traders. You may be lucky once or twice and make a buck or two, but the chances of coming out ahead in the long-run may not be in your favour.

Using your credit card to purchase Bitcoin is fine as long as you have enough money in savings to pay off your credit card statement in full when it comes due. The last thing you want is to lose a ton of digital currency and still have to pay your credit card bill in the real world in actual money.