Cryptocurrency started off as a niche financial medium that was ridiculed and labeled as a fool’s dream. But, in the past decade, the sentiment towards it has drastically changed for the better. As of July 2022, the Global Crypto market cap stands at $881.70 billion, and there are over 20,214 cryptocurrencies available, making it one of the fastest-growing financial sectors of the world. So, it is no surprise that numerous people from finance and non-finance backgrounds herald it as the future of global currency.
With one in five American adults investing, trading and using cryptocurrency, and so many other users from across the globe doing the same, many financial companies have realized that cryptocurrency is a brand new and shiny incentive that users want. This has given rise to a new payment method that rivals the traditional bank-issued credit card, the crypto credit card.
What is a Crypto Credit Card?
A crypto credit card is very similar to your everyday credit card. You get access to a credit line from the card issuer so that you can make your everyday purchases and then pay off the spent amount at the end of your billing cycle.
The primary difference is that a crypto credit card offers cryptocurrency reward points on your purchases while a regular credit card offers cashback, air miles or other points. Take, for instance, if you spend $2,000 during a particular month using a crypto credit card that offers 1.5% rewards, you will receive cryptocurrency rewards worth $30.
Most of the cards available are co-branded crypto credit cards that are issued by a particular bank and marketed under the name of a crypto exchange. Unlike most regular credit cards, nearly all crypto credit cards have no annual fees. But, they carry almost the same variable interest rates as other credit cards, that range from 10% to 30% APR.
Types of Crypto Credit Cards
In 2021, BlockFi launched the first ever crypto credit card that offered rewards in Bitcoin, Ethereum and other cryptocurrencies. Their Bitcoin Rewards Visa Credit Card was issued by Evolve Bank & Trust and is open to those residing in the United States. Since then, multiple other firms such as Gemini, Sofi and Coinbase to name a few, have launched their own crypto credit cards.
A year after the launch of the Bitcoin Rewards Visa Credit Card, crypto lender Nexo partnered with MasterCard to offer crypto enthusiasts the very first crypto-backed credit card. Unlike BlockFi’s crypto credit card, Nexo extends users with a line of credit using digital assets such as Bitcoin as collateral.
Each crypto credit card, regardless of whether it’s backed by the user’s credit score or digital assets, has its own unique reward rate. For example, BlockFi offers 1.5% back in crypto and Nexo offers 2% on every purchase, while Gemini offers 3% back on dining, 2% on groceries and 1% on all other purchases.
Drawbacks of Crypto Credit Cards
As with any credit-based financing option, Crypto Credit Cards come with their fair share of limitations.
- Unstable Value of Crypto Rewards
One of the major cons of crypto credit cards is that you can’t control the value of the crypto reward. While you may know the percentage of the reward and how many dollars it is worth, you cannot determine the value at which the cryptocurrency of your choice is purchased. Since the crypto markets are open from 12 am to 12 pm seven days a week, the prices of each coin constantly fluctuate. This can either positively or negatively impact the value of your returns.
Another drawback is the taxes and fees that are levied. The rewards earned through the use of the card, such as cashback or air miles, are not taxable when redeemed. However, the crypto rewards earned from transactions via a crypto credit card are seen as taxable assets once sold.
With over 1.06 billion credit cards being used in the United States of America and 2.8 billion in use worldwide, credit cards are one of the most common forms of payment for numerous people. For nearly 24.78% of people, the primary reason for them to use it is to accumulate rewards, and that’s why for crypto enthusiasts, crypto credit cards are the best financing tool.
Crypto Credit Cards are just the first of many new crypto-based financing options. With the adoption of cryptocurrency on the rise and investors looking for ways to better their portfolios, these cards are a perfect choice. That being said, in the volatile crypto market, crypto credit cards are primarily suitable for seasoned users with a high-risk appetite.