Cryptocurrencies are becoming a greater part of conversations in the finance industry, and many are looking to get on board. Credit card companies in particular are looking for ways to integrate cryptocurrencies, and one of the emerging ideas is a crypto-earning credit card. That is, instead of earning traditional cash-back or miles from your credit card, you would earn cryptocurrency. Depending on where you are in your investment journey and/or your experience with cryptocurrency, this may or may not be a good option for you. Continue reading for an overview of the pros and cons of crypto-earning credit cards.
UNDERSTANDING CRYPTO-EARNING CREDIT CARDS
Before going into all of the pros and cons, let’s first go through a basic overview of crypto-earning credit cards. Think about this like you would with traditional rewards; typically, you receive a certain amount of cash or miles for your purchases. When you make purchases on your crypto-earning credit card, you receive a certain amount of cryptocurrency for your purchases – this could be Bitcoin, Cardano, LiteCoin, Ethereum, or another digital currency. In general, your card will be linked to one single (or potentially a few different) digital currency. Several companies have announced plans to offer crypto-earning credit cards, including BlockFi, Brex, Gemini, SoFi, and Unifimoney.
PROS OF CRYPTO-EARNING CREDIT CARDS
Let’s now get into the pros of crypto-earning credit cards. Among others, the main arguments in favor of these credit cards include:
- Hassle-free way to start crypto investing – for those new to cryptocurrency investing, this is a great way to get started; you can avoid the need for a different currency exchange to buy/sell and you may even avoid purchase commissions
- High risk / high reward – great option for those who enjoy the potential for huge payoffs, even if the probability is low and the downside risk is high
- Potential for increasing value – unlike when you get cash back, which does not appreciate in value unless you invest, cryptocurrency rewards can grow in value
Crypto-earning credit cards are great for individuals new to crypto investing and who are drawn to the upside potential, even if there is more risk involved.
CONS OF CRYPTO-EARNING CREDIT CARDS
As for the cons, there are a good number of drawbacks associated with crypto-earning credit cards. Among others, the main arguments against these credit cards include:
- Inability to control investment timing – you cannot control when you purchase the cryptocurrency, which may impact your returns
- Fewer choices / less flexibility – you may be locked into one or only a few cryptocurrencies, and it will be difficult to purchase actual products or services unless you convert your crypto into cash
- Taxes and fees – you will be assessed capital gains tax on any pertinent cryptocurrency sales, and you may be subject to transaction fees associated with redeeming your cryptocurrency
- Volatility – cryptocurrency is a volatile asset, so there is high reward potential but also very significant downside risk
Crypto-earning credit cards come with significant downsides that can make them riskier and harder to predict relative to traditional rewards credit cards.
WHAT IS THE RIGHT CHOICE?
Ultimately, there is no right answer to this question. The important thing is that you take stock of your current position and priorities as an investor and decide from there. Some people prefer traditional rewards programs to mitigate risk and stick to the status quo, but ultimately, you must decide the right choice given your personal circumstances!