Bitcoin has given investors a wild ride over the past couple of years. The value of a single coin was below $10,000 at the start of 2020. By the end of 2021, it surpassed $60,000 multiple times, with dramatic lows in between.
With its growing popularity, you may be curious whether it’s worth incorporating Bitcoin into your financial life. Bitcoin might be a type of currency, but it’s much less accepted by merchants than cash is. Yet it has the chance to gain value quickly.
That’s where a Bitcoin credit card or debit card comes in. These cards can make managing Bitcoin simpler, especially when it comes to spending it on everyday transactions.
What Is Bitcoin?
Bitcoin is a cryptocurrency that was created in 2009. Here’s how it works: Users send each other digital tokens, and transactions are verified using extensive computing power. There are no actual coins involved.
Bitcoin is not issued or backed by financial institutions or the government, so it’s not considered legal tender. Even so, Bitcoin is valuable; 1 BTC was worth about $44,200 as of Feb. 15. Bitcoin is notoriously volatile, so prices can fluctuate wildly.
How Bitcoin Cards Work
There are two categories of Bitcoin cards. Here’s a closer look at what each one does:
Bitcoin Debit Cards
Bitcoin debit cards allow users to spend the cryptocurrency they own, similar to a prepaid debit card. “(These) cards essentially give cardholders the ability to convert their crypto assets — Bitcoin and other cryptocurrencies — into fiat currencies,” says Steven Kalifowitz, chief marketing officer at Crypto.com. Most Bitcoin and other cryptocurrency debit cards use global payment networks like Visa, which enable customers to use their cards to shop anywhere these networks are accepted. However, for these cards to work, users must already own Bitcoin.
[Read: Best Starter Credit Cards.]
For instance, BitPay offers a Mastercard that converts your cryptocurrency holdings into U.S. dollars without any fees, allowing you to spend crypto funds at any place Mastercard is accepted. The Crypto.com Visa card is a prepaid debit card that allows you to fund your spending account with fiat money (such as U.S. dollars) or cryptocurrency, and also offers rewards of up to 8% back on your spending. Similarly, the upcoming Coinbase Visa debit card will allow you to spend any asset in your Coinbase wallet, including U.S. dollars and Bitcoin. It also provides rewards of up to 4% back on spending.
“From the end-user perspective, Bitcoin cards work almost exactly the same way as traditional” cards, says Shidan Gouran, CEO of Gulf Pearl, a management consulting and technology firm. Behind the scenes, however, the mechanics are a bit more tricky, he says.
A traditional debit card would transfer funds from your checking account to the merchant’s account. “By comparison, the issuer of a (debit) card backed by a cryptocurrency such as Bitcoin would hold the crypto assets on behalf of the cardholder as a custodian,” Gouran says. “When the time comes for the cardholder to make a payment using the card, the crypto asset will be converted into the applicable currency for the actual transaction.”
For example, at the current Bitcoin price, a $440 purchase would require approximately 0.01 BTC to be converted. Say you had 1 BTC on a debit card and went into an electronics store to buy a tablet for $440. You would swipe your card, and there would be a near-instant deduction of 0.01 BTC from your Bitcoin balance. That would convert to $440, which would then be remitted to the merchant. Walking out of the store, you would have a new card balance of 0.99 BTC.
Gouran says this practice is similar to foreign currency exchange. “If a cardholder of a U.S. card goes to Canada and pays for a restaurant meal using that card, the restaurant would receive the total amount of the bill plus tip in Canadian dollars, and the converted U.S. dollar amount would be billed to the cardholder as usual.”
The main difference with Bitcoin debit cards is in the type of currency transacted.
Bitcoin Rewards Credit Cards
Rewards credit cards that offer Bitcoin instead of points or miles are the newest products on the market. They function like typical credit cards (as in, you can charge purchases to a line of credit) except you get cash back and rewards in the form of cryptocurrency, says Paul Sundin, a certified public accountant and CEO of Emparion, a retirement services company. There are several Bitcoin and crypto rewards cards available today.
[Read: Best Rewards Credit Cards.]
— BlockFi Rewards Visa Signature Credit Card. The crypto trading firm and crypto-asset-backed lender offers a rewards credit card. The card is available to clients who have funded BlockFi accounts. Every card purchase earns 1.5% cash back, which is converted to Bitcoin and added to the cardholder’s account each month. Purchases over $50,000 spent annually earn 2% back. There is also no annual fee.
— Gemini Credit Card. A crypto rewards Mastercard is available from cryptocurrency exchange Gemini. It allows users to earn up to 3% back on every dollar spent in the form of Bitcoin or more than 50 other cryptocurrencies. Rewards are also deposited to users’ accounts immediately. There is no annual fee. There is a waitlist to open this card.
— Upgrade Bitcoin Rewards Card. Upgrade offers a handful of card products that work like credit card-personal loan hybrids. You charge purchases against a line of credit (which may range between $500 and $25,000), but you pay down the balance in fixed monthly installments. The Upgrade Bitcoin Rewards Visa offers unlimited 1.5% back on purchases in the form of Bitcoin when you make your payments. There are no fees.
— Venmo Credit Card. The rewards credit card offered by Venmo recently began offering cardholders the option to purchase Bitcoin, Ethereum, Litecoin and Bitcoin Cash using their rewards points with no transaction fee. Users choose their preferred cryptocurrency ahead of time, and at the end of each month, Venmo automatically uses the cash back earned to purchase that crypto. Earn 3% cash back on your highest spending category, 2% cash back on your next-highest category, and 1% cash back on everything else.
Pros and Cons of Bitcoin Cards
Whether you use a debit card that allows you to spend your existing Bitcoin or you plan to open a card that pays Bitcoin rewards, there are a few pros and cons to keep in mind.
Bitcoin Card Pros
— Widespread availability. Crypto debit cards are now widely available across the globe, just like traditional debit and credit cards. “Tight regulatory frameworks ensure their security,” Kalifowitz says. “(The cards’) embracement from major global payments processors like Visa ensure users can pay almost anywhere.”
— User-friendly platform. Most crypto card companies have mobile apps, just like traditional banks, but they’re usually much more user-friendly, Kalifowitz says. “Unlike traditional banks, many of which were established a century or more before the internet, crypto card issuers are modern firms built on and for digital platforms,” he says.
— An easy way to explore. Sundin says that Bitcoin rewards cards are a good choice for people who are “crypto-curious” but don’t want to actually shell out cash to get started. “This is a good way to get into the game without using your own money to enter,” he says.
Bitcoin Card Cons
— Rewards could go up or down in value. What’s also good about Bitcoin rewards cards is that you earn points and rewards in the form of bitcoins, which have the potential to increase in value over time. Of course, there is also the possibility that the currency loses value.
— Risk of hacking. Because these cards are custodial, meaning that the issuer holds the cryptocurrency assets, Gouran says there is an inherent risk of the issuer getting hacked or going bankrupt. In that case, recovering your assets may prove difficult or impossible.
— Potential tax consequences. Since cryptocurrencies need to be swapped for cash before they’re used to pay for something, Gouran says that all such transactions will likely incur a capital gain or loss. “Even if the tax consequences to the cardholder are negligible, it will create an accounting nightmare,” he says.
Who Should Consider a Bitcoin Card?
So the question is: Should you get a Bitcoin debit or credit card? It all comes down to the relevance of cryptocurrencies to you as a consumer, Gouran says. If you have already bought Bitcoin and you’re looking for a way to spend some of your investment, this is a good reason to use a Bitcoin debit card.
If you want to diversify the types of credit card rewards you are earning, consider a Bitcoin rewards card.
Ultimately, Bitcoin cards allow a fairly seamless on-ramp to learning more about cryptocurrencies. “The cards look, feel and act like the traditional cards we’re all familiar with,” Kalifowitz says. “The world of Bitcoin and crypto can look confusing and unfamiliar to many, preventing them from ever acting on their curiosity — but crypto cards were designed to appeal to anyone.”
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