If you believe in the potential of cryptocurrencies to appreciate in value, you might want to explore the option of a crypto rewards credit card. However, it’s essential to fully grasp the inherent volatility of cryptocurrency markets before making such a decision. Additionally, it is wise to investigate the types of purchases that yield rewards prior to committing to a particular rewards credit card.
In the United States, consumers have a strong affinity for rewards associated with credit card usage, including cash back, travel perks, gift cards, and more. A recent survey conducted by Morning Consult revealed that 80% of Americans possess at least one credit card that offers rewards, with 88% expressing appreciation for their credit cards’ rewards programs.
For enthusiasts of both rewards programs and cryptocurrencies, a new breed of cards known as crypto credit cards may be particularly enticing. These cards function similarly to traditional rewards credit cards, but instead of earning typical rewards such as airline miles, cardholders accumulate cryptocurrencies like Bitcoin and Ether.
According to Brent Weiss, a certified financial planner and head of financial wellness at Facet, “Individuals who have faith in the future of cryptocurrencies are drawn to cards that allow them to earn and utilize digital currencies.” He adds that earning these rewards is comparable to investing, as the value of the rewards could increase alongside the rising prices of cryptocurrencies. “It’s akin to receiving stock shares for expenditures made on a conventional card,” Weiss states.
However, it’s crucial to recognize the risks associated with these rewards. Below, we outline important information to consider before applying for a crypto credit card.
The Landscape of Crypto Credit Cards
The crypto credit card market has experienced fluctuations similar to those of cryptocurrency prices. In 2021, during a significant surge in crypto values, several companies launched their own crypto credit cards. However, when Bitcoin’s value plummeted from around $64,000 to below $20,000 within a year, coupled with the downfall of the prominent crypto platform FTX, many companies took notice. For instance, BlockFi, a digital asset lender, partnered with Visa to introduce a card that offered 1.5% back in Bitcoin on every purchase in 2021, only to declare bankruptcy in 2022. Similarly, the Upgrade Bitcoin Rewards Visa Credit Card has since been discontinued.
Despite the challenges, many industry stakeholders remain optimistic about cryptocurrencies, especially given the supportive stance of former President Donald Trump toward digital assets. Currently, however, there are only two primary options for consumers wishing to earn crypto rewards through credit card transactions: the Gemini Credit Card and the Venmo Credit Card. The Gemini card provides up to 4% back (depending on the category of spending) in Bitcoin, Ether, or over 50 other cryptocurrencies, while the Venmo card allows users to automatically convert their cash back into Bitcoin, Bitcoin Cash, Ether, Litecoin, or PayPal’s stablecoin.
How Crypto Credit Cards Operate
Crypto credit cards function similarly to traditional credit cards in terms of transaction processes, provider networks, and usability, as explained by Weiss. They can be used like any standard credit card at merchants that accept major networks (most often Visa or Mastercard), with purchases processed in real-time. However, unlike traditional credit cards that typically offer points or miles redeemable for travel, gift cards, or account credits, crypto credit cards enable users to accumulate cryptocurrency, which can then be held, traded, or converted into cash.
Advantages and Disadvantages of Crypto Credit Cards
Crypto credit cards present several advantages, such as growth potential, as the value of cryptocurrencies can increase significantly compared to standard cash back or points when market prices rise. They also contribute to the advancement and acceptance of cryptocurrency. However, these cards come with drawbacks, including heightened volatility. For example, if you earn 1% back in Bitcoin and its value drops by 50% overnight, your rewards would instantly halve in worth, warns Ben Loughery, a certified financial planner and founder of Lock Wealth Management. Additionally, the regulatory landscape surrounding cryptocurrency remains uncertain, which could affect the functioning of your card or the taxation of rewards in the future.
Furthermore, there is limited flexibility in redeeming rewards. “Rewards are often restricted to cryptocurrency,” Weiss notes, indicating that you may miss out on more versatile redemption options available with traditional rewards programs. In some instances, other rewards credit cards might yield superior returns (like cash back or travel points) based on your spending habits. Additionally, it’s important to be aware of the tax implications; capital gains taxes will likely apply when you sell or convert cryptocurrencies, a consideration absent with conventional rewards.
Factors to Weigh Before Obtaining a Crypto Credit Card
When selecting any type of credit card, Weiss recommends evaluating your spending habits, as different cards provide varying rewards for specific purchase categories. It is important to choose a card that offers enhanced rewards for the areas where you spend the most, whether that be on gas, groceries, dining out, or other expenses. You should also understand the redemption process for your rewards, along with any associated fees and interest rates. However, with a crypto credit card, additional considerations come into play. In addition to staying informed about the evolving regulatory environment, you must prioritize security measures to protect your crypto rewards. “Ensure that your crypto rewards are stored in a secure wallet or platform,” Weiss advises, highlighting that the risk of crypto theft and hacking is a significant concern.
