Rewards credit cards are one of the most popular ways to pay for purchases. The rewards you earn can easily turn into everything from cash back to free travel. And now, you can even earn rewards in the form of cryptocurrency.
Crypto credit cards are a new type of rewards card being offered by many popular crypto brokers and exchanges. If you want to start investing in cryptocurrency -- or add to your current investments -- a crypto credit card may make sense for you. Keep reading to learn more about how crypto credit cards work and what rewards they may offer.
What is cryptocurrency?
Cryptocurrencies are digital currencies that operate on publicly distributed ledgers known as blockchains. They're traded through online exchanges using electronic tokens and keys. The best known is Bitcoin (BTC), which launched in 2009, but there are over 9,000 different currencies out there as of late 2023.
LEARN MORE: Types of cryptocurrency
Crypto can be used to pay for purchases at an increasing number of retailers (and even to pay taxes in some places). However, they're more often treated as speculative investments. Cryptocurrencies are extremely volatile and often don't have the same kind of protections as money you keep in the bank.
RELATED: How to invest in cryptocurrency
What is a crypto credit card?
A crypto credit card is a rewards credit card that lets you earn cryptocurrency rewards on purchases instead of cash back or points. They function the same way as a normal credit card: You get a line of credit from the bank that you use to make purchases, then pay them off at the end of the billing cycle. The only difference is the type of rewards you earn.
Crypto credit cards are generally cobranded credit cards. This means they are issued by a bank but marketed by a brand, such as an investment company or crypto exchange. For instance, the popular BlockFi Rewards Visa® Signature Credit Card is issued by Evolve Bank & Trust, but marketed by BlockFi. The crypto rewards you earn are deposited into your BlockFi account.
RELATED: Best crypto apps and exchanges
How does a crypto rewards credit card work?
A cryptocurrency rewards credit card is used to make purchases like any other rewards card. However, you don't earn cash back or travel rewards. Instead, the rewards you earn are automatically used to purchase crypto that is deposited into your connected crypto account. The type of crypto you earn will depend on the card you have and which crypto you select. Each crypto credit card has a set list of available cryptocurrencies. Some common crypto rewards currencies include:
- Bitcoin (BTC)
- Ethereum (ETH)
- Dogecoin (DOGE)
- Litecoin (LTC)
- Gemini Dollar (GUSD)
How much crypto you get varies based on the rewards rate and the market value of the coin at the time of the transaction. Like regular rewards cards, many crypto cards earn a flat rate on purchases, plus bonus rewards on purchases in certain categories.
For example, say you have a card that earns 3% back in crypto rewards on gas, and your chosen crypto is Bitcoin. If you make a $100 gas station purchase with your card, you'll earn $3 worth of Bitcoin based on the price of Bitcoin at the time the transaction posts. There are no exchange fees to turn your rewards into cryptocurrency with a crypto credit card.
Crypto credit vs. debit card
Crypto debit cards are similar to ordinary debit cards, and most operate on one of the major card networks (Visa, Mastercard, etc.). Some cryptocurrency exchanges and wallets provide them as a way to spend your crypto at merchants that wouldn't otherwise accept crypto payments.
When you use a crypto debit card, the funds will be drawn from your crypto wallet or crypto investment account and automatically converted to the merchant's currency. As with regular debit cards, you'll need to have adequate crypto available in your account to make a purchase.
In contrast, crypto credit cards don't spend your current crypto. Instead, they operate on a credit line in your local currency, just like regular credit cards. As such, you're essentially borrowing money from the card issuer which you then pay back when your bill is due. They're called crypto credit cards because they earn crypto rewards, not because they use crypto to make purchases.
RELATED: Credit vs. debit card
Should I get a crypto credit card?
Crypto rewards cards are best suited to people who already have a strong interest in cryptocurrency investing. That's because crypto is much more complex than regular credit card rewards (yes, even credit card points). For one thing, most cryptocurrencies are very volatile, meaning their value isn't very stable. Unlike cash back, the crypto you earn could lose significant value from one day to the next.
There are also tax complications inherent in crypto that don't typically apply to other types of credit card rewards. Specifically, cryptocurrency is considered to be an asset by the IRS. As such, you can wind up with a tax bill if you decide to sell your crypto, even if you earned it through credit card rewards.
LEARN MORE: How is cryptocurrency taxed?
Additionally, don't forget about the potential opportunity cost of using a crypto rewards card. Most crypto credit cards have fairly low rewards rates compared to the top rewards credit cards on the market. You may be missing out on rewards by going with a crypto card with a lower rate. If you really want to invest in crypto with your credit card rewards, you could simply cash out your rewards from an ordinary rewards credit card and use the proceeds to invest in crypto. If one of the best credit cards pays a higher cash back rate on your everyday expenses, that may make more sense.
LEARN MORE: How to maximize credit card rewards
Ready for a crypto credit card? Check out The Ascent's guide to the best crypto credit cards.
Still have questions?
Some other questions we've answered:
- Can I buy cryptocurrency with a credit card?
- Is crypto right for you?
- What crypto exchange fees should I look out for?
FAQs
A crypto credit card could be worth it if you're already interested in investing in crypto. However, keep in mind that because crypto is volatile, your rewards could gain or lose value quickly. If you want to be sure your rewards don't lose value, earning cash back rewards is a better option.
Some of the best crypto credit cards include the Gemini Credit Card™, the Upgrade Bitcoin Rewards Card, and the BlockFi Rewards Visa® Signature Credit Card.
Yes, using a crypto credit card will affect your credit score in the same ways as a regular credit card. Your payment history and credit usage will be regularly reported to the credit bureaus, which will help your score over time if you make on-time payments and keep your balance low.
As an avid enthusiast and expert in the field of financial technology and cryptocurrency, I have closely followed the evolution of rewards credit cards, especially the emerging trend of crypto credit cards. My deep understanding of blockchain technology, digital currencies, and the intricate workings of the financial industry positions me as a reliable source to elaborate on the concepts discussed in the article.
Cryptocurrency Basics: Cryptocurrencies are digital currencies that leverage blockchain technology for decentralized and secure transactions. Notably, Bitcoin (BTC) pioneered the concept in 2009, and the crypto landscape has since expanded to include over 9,000 different currencies by late 2023. These digital assets are traded through online exchanges using electronic tokens and cryptographic keys.
Types of Cryptocurrency: The article mentions several cryptocurrencies, including:
- Bitcoin (BTC)
- Ethereum (ETH)
- Dogecoin (DOGE)
- Litecoin (LTC)
- Gemini Dollar (GUSD)
Each cryptocurrency operates on its blockchain, and their values are subject to market fluctuations. Understanding the unique features and use cases of each coin is crucial for those considering crypto investments.
Crypto Credit Cards: A crypto credit card is a rewards credit card that distinguishes itself by offering cryptocurrency rewards instead of traditional cash back or points. These cards operate similarly to regular credit cards, providing users with a line of credit to make purchases, which they then pay off at the end of the billing cycle. The primary difference lies in the type of rewards earned.
How Crypto Rewards Credit Cards Work: When using a crypto rewards credit card, users earn rewards in the form of cryptocurrency, such as Bitcoin or Ethereum, based on their spending. These rewards are automatically deposited into the user's connected crypto account. The amount of crypto earned depends on the rewards rate and the market value of the chosen cryptocurrency at the time of the transaction.
Crypto Credit vs. Debit Cards: It's essential to differentiate between crypto credit cards and crypto debit cards. Crypto debit cards operate similarly to traditional debit cards, drawing funds directly from a user's crypto wallet or investment account and converting them to the merchant's currency. In contrast, crypto credit cards operate on a credit line in the local currency, allowing users to borrow money from the card issuer and earn crypto rewards.
Considerations for Getting a Crypto Credit Card: The decision to acquire a crypto credit card should be informed by one's interest and understanding of cryptocurrency investing. Due to the inherent volatility of cryptocurrencies, users must be aware that the value of their rewards can fluctuate significantly. Additionally, there are tax implications associated with cryptocurrencies as they are considered assets by tax authorities.
Best Crypto Credit Cards: The article suggests some of the best crypto credit cards, including the Gemini Credit Card™, the Upgrade Bitcoin Rewards Card, and the BlockFi Rewards Visa® Signature Credit Card. Evaluating the rewards rates, fees, and terms of these cards is essential for potential users.
Impact on Credit Score: Using a crypto credit card will affect one's credit score similarly to a regular credit card. Factors such as payment history and credit usage will be reported to credit bureaus, contributing to overall creditworthiness.
In conclusion, the intersection of traditional finance and cryptocurrency through crypto credit cards presents a dynamic landscape for individuals interested in both worlds. However, potential users should weigh the risks, tax implications, and rewards structures carefully before diving into this innovative form of financial technology.
