Cryptocurrencies are the next big wave in terms of innovations in the financial sector, and it is quite encouraging to see many of the biggest banks and financial institutions try to enter the market by offering payment options in crypto, as well as investing money in tokens. There are already some payment providers, such as Apple Pay, Samsung Pay and Google Pay, which have enabled support for cryptocurrencies by allowing cryptocurrency debit cards from providers like Coinbase on their platforms. Others, such as PayPal, allow direct crypto transactions on the platform. All of these methods work by converting users’ crypto balances into the relevant fiat currency before making the payment to the merchant, as we are still some way off from a situation where merchants will accept crypto directly as payment. The biggest reason for this is the volatility of crypto tokens, which makes it difficult to predict what the value of a certain amount of tokens will be in both the short and the long term. Nevertheless, the idea of using crypto to make regular payments is quite appealing, and this has led to the creation of crypto rewards credit cards.
These are credit cards that deliver rewards and cashback in some form of cryptocurrency or cryptocurrency-related benefits, rather than the traditional method of cashbacks or discounts at merchants and so on. Issuers such as SoFi, Brex, BlockFi, Gemini and Unifimoney have either launched such cards, or announced plans to do so. These cards can deliver cryptocurrencies directly as rewards for credit card spending, or provide points or cashback that can be converted into cryptocurrency tokens.
There are several advantages to using such cards. First of all, they provide an easy way to get into the crypto market. Rather than having to put in work to understand the market and investment opportunities, this allows customers to gain tokens through their credit card spending. Most cards that offer such rewards are already linked to crypto exchanges, and so users will be easily able to trade their crypto holdings if they want, while they may not need to pay a commission either. These rewards are also similar to regular credit card rewards, in that they offer potential outsize benefits that you were not counting on. The biggest advantage is that, unlike regular cashbacks and rewards, crypto rewards have the potential to increase in value, and thus the use of such crypto reward cards is a way to invest passively in the crypto market, especially if you are a customer who is new to the market and does not know too much about investing in crypto.
However, there are some arguments against this as well. There are not too many credit cards available at the moment that offer this benefit, and it may be better to use a regular credit card and invest the rewards from that card into the crypto market. This will give you a larger set of options to choose from, allowing you to pick the card that suits your spending patterns and allowing you to earn more rewards as well. The volatility of crypto makes the value of any potential rewards quite uncertain as well – a 2% reward could be halved to 1% if the value of the token drops by half, which is unfortunately far likelier than it is on the stock market or for fiat currencies. Another related issue with the crypto market is that of timing – the most successful crypto investments are those that are timed correctly when the value of the token is low. This ability is taken out of your hands through such cards, where the rewards cycle will be fixed and could be delivering rewards at a time when the crypto token is priced high, reducing its value. There is also less flexibility, as you may not be able to choose the crypto token that you receive your reward in, while you may also end up converting the rewards back to dollars or other fiat currencies since most merchants will not accept direct crypto payments.
Thus, there are several positives and drawbacks for using crypto reward credit cards, but it cannot be denied that this is quite an exciting innovation which provides another way for the market to integrate cryptocurrencies into payment systems.