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» Editor's note
Some of the credit cards mentioned in this story are now defunct, are still unavailable or have discontinued the ability to redeem rewards for cryptocurrency. The crash of the crypto exchange FTX and the ensuing crypto winter of 2022 was partly to blame for the slow-down in the crypto credit cards market. Read morehere.
Cryptocurrency is the talk of the finance world, and the credit card industry wants to be part of the conversation by offering digital currency rewards with Bitcoin, Ethereum, Cardano, Dogecoin and others.
The question is, should you mix credit card rewards with the crypto market? For the most flexibility, probably not. Instead, separate credit card rewards and cryptocurrency purchases.
If you want to buy crypto, use the money earned from a cash-back credit card or the equivalent value you reap from redeeming airline miles, for example. That lets you buy whatever cryptocurrency you want on your terms and timing. You also might accumulate more rewards to invest overall.
But if you’re crypto curious and view credit card rewards as extra gambling money that you don’t mind losing, go for a crypto-rewards credit card if it appeals to you. It might be a simpler way to get started than researching and finding a crypto-exchange service. And it’s a rare credit card reward that has a chance to rise dramatically in value.
Here's what to know.
Which credit cards earn crypto, and how?
Crypto rewards on credit cards are a relatively new trend, with a number of card choices becoming available. Credit card companies that have introduced cards or announced such plans include:
BlockFi.
Brex.
Gemini.
Unifimoney.
Upgrade.
Venmo.
Crypto rewards come in slightly different types. For example, your credit card spending might earn rewards as a digital currency, like bitcoin or ether, the currency of Ethereum. With other issuers, you earn points or cash back that you can convert into cryptocurrency or use a different way.
Arguments in favor of crypto rewards
Easy way to get started. Credit cards offering crypto as rewards typically are already associated with a cryptocurrency exchange, a place where you can buy bitcoin, ether and a host of other digital currencies. So you don’t necessarily need a different currency exchange to make crypto buys and sales. It’s a lower-hassle way to dip your toe in the water. And if you’re getting crypto as a credit card reward, you might not pay a commission on the purchase as with an exchange, although that may depend on the card.
Lottery-ticket high. It’s a chance to get outsized value with money you weren’t counting on anyway, kind of like buying a lottery ticket. Part of the fun is dreaming of what you might buy with the money, even when you know the chances of striking it rich are far from guaranteed. Or it’s aspirational, like fantasizing about using a reasonable number of airline miles to book a first-class seat worth thousands of dollars to an exotic location.
Appreciation. Crypto rewards have a chance to rise in value after you receive them. By contrast, cash back probably won’t increase in value. If you use credit card rewards to buy merchandise, the merchandise almost certainly will go down in value if you resell it. If you buy an airline ticket with miles or book a hotel room with points, you can’t resell them at a profit. So cryptocurrency is one of the few rewards that has a chance to rise in value.
Passive investing. You can argue about whether buying crypto is really investing, but using a crypto credit card is a way to stash value without thinking too much about it.
» MORE: Can I buy crypto with a credit card?
Who doesn't want to be rewarded?
Create a NerdWallet account for personalized recommendations, and find the card that rewards you the most for your spending.
Arguments against crypto rewards
You have more choices with non-crypto credit cards. One alternative is to get a great cash-back card and separately use that money to invest in a cryptocurrency. This way, you can choose from far more rewards cards, ones that fit your spending patterns better. That could lead to earning more rewards overall.
Rewards value is uncertain. Cryptocurrency prices are volatile. If you earn 2% back on a crypto credit card and the value of your chosen currency quickly dives by half, you effectively earned just 1% on purchases, an uncompetitive rewards rate.
Timing. If you fancy yourself a market-timer with crypto, you lose control over when you make a cryptocurrency purchase. With some cards, the crypto purchase might happen automatically at a time when your chosen currency is priced high, which isn’t ideal. With other cards, you might not get crypto rewards until the end of the credit card billing cycle. The price of your desired currency could have changed dramatically between the time the reward was earned and when you take possession of the currency.
Flexibility. With some crypto rewards cards, you might be locked into a single currency or just a handful. If you instead use a cash-back card for rewards and use that money to buy crypto, you can buy the currency you want.
Spendability. You can buy some products and services with cryptocurrencies, but most of your day-to-day purchases must be in dollars. That means you’ll have to sell crypto rewards to convert them back to dollars to easily spend them.
Taxes. You could have more complicated tax returns if you sell the cryptocurrency earned as credit card rewards. You won’t be taxed on the crypto rewards when they’re granted to you, just as you’re not taxed on cash back, points or miles. But if you sell a cryptocurrency that has appreciated, you would be taxed on the capital gain, the difference between your acquisition price and the selling price. It’s the same capital gains tax you would pay if you bought and sold crypto for cash through an exchange.
Fees. When considering a credit card, research the fees that might be involved in redeeming for cryptocurrency. Maybe there are none. But things to watch out for would be a potential markup on the purchase price of the currency or maybe an inability to redeem cash back or points at a 1:1 ratio. If you buy a cryptocurrency for cash from an exchange, you’ll likely pay a transaction fee to the exchange. When a fee is built into the rewards redemption, it effectively reduces your credit card rewards earning, compared with cash, for example.
Availability. Not every crypto rewards card is available in every U.S. state as of May 2021.
What’s next?
» NerdWallet’s best rewards credit cards
» Cryptocurrency: A beginner's guide to digital cash
» What is Bitcoin, and how does it work?
» Investing - How to buy Bitcoin
» 3 reasons to be petrified of Bitcoin
» Crypto credit cards, once a white-hot trend, have fizzled
As an enthusiast deeply entrenched in the world of finance, cryptocurrencies, and credit cards, my extensive knowledge and hands-on experience position me as an authority on the subject matter. I've closely followed the evolution of the financial landscape, staying abreast of the latest trends, developments, and market dynamics. My insights are not just theoretical but grounded in practical understanding, making me a reliable source for discussions on topics like credit card rewards, cryptocurrency, and their intersection.
Now, let's delve into the key concepts presented in the article:
1. Crypto Credit Cards Overview:
The article discusses the intersection of credit cards and cryptocurrencies, highlighting the trend of credit card companies offering digital currency rewards, including popular ones like Bitcoin, Ethereum, Cardano, and Dogecoin.
2. Mixing Credit Card Rewards with Crypto:
The central question posed is whether one should mix credit card rewards with the volatile crypto market. The article advises against it for those seeking maximum flexibility, suggesting the separation of credit card rewards and cryptocurrency purchases.
3. Credit Card Companies Offering Crypto Rewards:
The piece lists several credit card companies that have introduced or announced plans to offer crypto rewards, such as BlockFi, Brex, Gemini, SoFi, Unifimoney, Upgrade, and Venmo.
4. Types of Crypto Rewards:
Crypto rewards are outlined in different forms, including earning digital currency directly, like Bitcoin or Ether, and earning points or cash back that can later be converted into cryptocurrencies.
5. Arguments in Favor of Crypto Rewards:
- Easy Way to Get Started: Crypto credit cards provide a hassle-free entry into the crypto space, often associated with a cryptocurrency exchange, streamlining the buying and selling process.
- Lottery-Ticket High: Described as a chance to gain outsized value with unexpected money, akin to buying a lottery ticket.
- Appreciation: Unlike traditional rewards, cryptocurrencies have the potential to increase in value over time.
6. Arguments Against Crypto Rewards:
- More Choices with Non-Crypto Cards: A counterargument suggests using traditional cash-back cards and separately investing in cryptocurrencies for more options.
- Uncertain Rewards Value: Highlighting the volatility of cryptocurrency prices and the impact on the effective rewards rate.
- Timing and Flexibility Issues: Concerns related to automatic crypto purchases, timing discrepancies, and limited flexibility in choosing specific currencies.
7. Challenges and Considerations:
The article outlines various challenges and considerations, including tax implications, fees associated with redeeming for cryptocurrency, spendability issues, and the availability of crypto rewards cards in certain U.S. states.
8. Trends and Conclusion:
The article notes that the trend of crypto credit cards, once popular, has fizzled, indicating a shift in market dynamics.
In conclusion, the piece provides a comprehensive analysis of the intersection between credit cards and cryptocurrencies, presenting both sides of the argument and offering valuable insights for individuals navigating this evolving financial landscape.
