Cryptocurrency is a hot topic in the financial world right now. As a result, the credit card industry is joining the cryptocurrency debate by providing digital currency incentives in the form of Ethereum, Bitcoin, Dogecoin, Cardano, HNT, and other cryptocurrencies.
But if you’re asking the question of whether credit card rewards should be combined with the cryptocurrency market or not, I would say probably not because in terms of flexibility it isn’t the greatest. Rather than doing so, you should separate your credit card rewards from your cryptocurrency purchases.
Are you still confused about whether you should buy cryptocurrency or take it as a credit card reward? Stay tuned until the end of this article to find out.
Which Credit Cards Can You Earn Crypto On and How?
Credit card crypto rewards are a relatively new trend, but there are a growing number of card options becoming available already. Companies that have already introduced, announced, or planning to announce such rewards on their cards are:
- BlockFi.
- Brex.
- Gemini.
- SoFi.
- Unifimoney.
- Upgrade.
- Venmo.
Different types of cryptocurrency rewards are already out there. For example, your credit card spending could result in rewards in the form of a digital currency, such as bitcoin, HNT, or ether, the currency of Ethereum. You can earn points or cashback from other issuers, which you can then convert to cryptocurrency or use in another way.
Advantages of Crypto Rewards
There are many advantages of Crypto rewards, to be honest. You can find it everywhere on the internet, but if you want to talk, trade, or stream about cryptocurrency, you can check out trading.tv. But before you do so, read some of the advantages I have listed here.
- It’s a Simple Way to Get Started: Credit cards that offer cryptocurrency as a reward are typically linked to a cryptocurrency exchange, where you can purchase bitcoin, ether, and various other digital currencies. As a result, you don’t have to use a different currency exchange to buy and sell cryptocurrency. It’s a less complicated way to start with for a beginner. Moreover, if you receive cryptocurrency as a credit card reward, you may not have to pay a commission on the purchase as you would have to do with an exchange, though this may vary from card to card.
- It’s More Like Buying a Lottery Ticket: Because crypto gives you the chance to get a lot of stuff for a little money, it is quite similar to buying a lottery ticket. Dreaming about what you might buy with the money is part of the fun, even if you know your chances of striking it big are close to none. It can also be aspirational, such as fantasizing about using a reasonable number of airline miles to book a first-class seat to an exotic location worth thousands of dollars.
- Its Value Might Rise: After you receive your crypto rewards, there is a high possibility their value may rise. On the other hand, in the case of cash-backs, it is unlikely to gain any value. If you use credit card rewards to purchase goods, the value of the goods will almost certainly decrease if you resell them. You cannot resell an airline ticket or a hotel room purchased with miles or points. As a result, cryptocurrency is one of the few rewards with the potential to appreciate.
- Investing in Something Passive: You can argue as much you want on the matter, whether purchasing cryptocurrency is investing or not, but one thing you have to agree is that using a cryptocurrency credit card is a convenient way to store value without having to think about it too much.
Disadvantages of Crypto Reward
Like any good thing, crypto rewards have their disadvantages too. I have listed those down below:
- Non-crypto credit cards give you more options: One option is to get a good cash-back credit card and invest the money in a cryptocurrency separately. This way, you’ll have a much larger selection of rewards cards to choose from, all of which will better suit your spending habits. This could lead to a higher overall reward.
- The worth of the rewards will be unknown: The value of cryptocurrency fluctuates. If you earn 6% back on a crypto credit card and the value of your chosen currency falls by half in a short period, you have effectively earned only 3% back on purchases, which is an uncompetitive reward rate.
- The Timing Period: You lose control over when you make a cryptocurrency purchase if you consider yourself a crypto market timer. Some cards may automatically purchase cryptocurrency at a time when the value of your chosen currency is high, which isn’t ideal. Other cards may not provide crypto rewards until the credit card billing cycle has ended. The value of your desired currency may have changed dramatically between the time you earned the reward and the time you received it.
- You Lose Your Flexibility to Buy Different Currencies: Some of the crypto rewards cards may restrict you to a single or a small number of currencies. So you can only buy the currency you want if you use a cash-back card to earn rewards and then use that money to buy crypto.
- Your Ability to Spend Will Be Restricted: The payment for some products and services can be made by using cryptocurrencies, but to buy the majority of your necessary daily things, you’ll need US dollars. That means you’ll have to sell your cryptocurrency rewards to convert them to dollars, which you can then spend, which will feel like an unnecessary hassle at a point.
- Your Tax Returns Will Become More Complicated: If you sell the cryptocurrency earned as a credit card reward, your tax returns may become more complicated. Because when you receive crypto rewards, you will not be taxed, just as you are not taxed on cash-back, points, or miles. However, when you sell a cryptocurrency value that has appreciated, you will be taxed on the capital gain, which is the difference between the purchase and selling prices. It’s the same capital gains tax you’d have to pay if you bought and sold cryptocurrency for cash on an exchange.
Lastly, I know we all are not always excited about changes, and many of us like things as they are, but some changes are good for us. The same goes for crypto-earning on credit cards; yes, it may be a whole new change for many of you, but after comparing all the good and bad aspects, it’s a good one. I hope you will also agree with this after reading this article.