Why a Crypto Rewards credit card is probably a bad idea
With crypto rewards cards, a small percentage of your purchases can be exchanged for cryptocurrency instead of cash back or points redeemed. in a rewards portal. But just because you can combine your credit card rewards with cryptocurrency speculation, doesn’t mean you should, because less risky cash refunds could offer you more value in the long run.
What should i know about crypto rewards programs?
Most cards offer fixed rates of 1% to 2% on each purchase, while others offer variable rates based on spending categories. Since many crypto exchanges offer these cards (SoFi, Gemini, BlockFi) in partnership with MasterCard or Visa, crypto is usually deposited into an account on these exchanges. But while it is true that a cryptocurrency could have potentially astronomical value if it ultimately replaced fiat money – as many enthusiasts believe – it remains a highly speculative long-term bet.
Due to crypto’s volatility, highly speculative value, and thousands of competing blockchain currencies to choose from, there is no guarantee that any given cryptocurrency will have long-term value. Before signing up for a crypto rewards card, ask yourself questions about the following considerations.
- The value of rewards: Cryptocurrencies tend to fluctuate wildly (10-15% of price fluctuations in a day are not uncommon), so there is no way to predict what your accumulated income might be at a future date. Even if you plan to keep your rewards, it is also possible that a given cryptocurrency will be worth zero dollars. You’ll also want to check out the additional fees associated with cryptocurrency redemptions, as they may reduce the value of your rewards.
- The rewards options: While some crypto cards offer redeemable cash statement credits and other rewards, they tend to be limited in terms of what you can redeem compared to regular rewards cards which offer higher cash back rates. . And despite the weird exception, most vendors don’t accept crypto, so it’s a bit tricky to buy stuff with it (if that’s what you wanted to do with it).
- Lack of choice: Some cards offer a few currencies to choose from, but most simply offer Bitcoin or Ethereum, which further limits the flexibility of your rewards. If, say, Dogecoin becomes king and those currencies end up piling up for some reason, then you will be left to hold the bag.
- Taxes: Whenever you withdraw a cryptocurrency that appreciates in value, you have to pay capital gains taxes. Even if you only pay a low 10% capital tax rate, it still represents a considerable amount of change for any amount of money converted from cryptocurrencies. On the other hand, regular cash back rebates are considered rebates by the IRS and therefore are not taxed.
At the end of the line
There is nothing wrong with putting money into crypto, but you might want to process trades directly. They will give you more choices and you will be able to make a one-time purchase rather than signing up for what is essentially a crypto subscription service through your credit card.
Plus, rewards cards already offer a safe bet in terms of instant cash value, even if it’s only $ 30 / month depending on your spending habits. It might not have the potential to grow by 1000%, but it won’t be 0% either.