With crypto rewards cards, a small percentage of your purchases can be redeemed 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, as less risky cash back redemptions might offer you more value in the long run.
What should I know about crypto rewards programs?
Most cards in the U.S. offer flat 1-2% rates on every purchase, while others offer variable rates based on categories of spending. Since a lot of crypto exchanges offer these cards (SoFi, Gemini, BlockFi) in partnership with MasterCard or Visa, the crypto is typically deposited into an account on these exchanges. But while it’s true that a cryptocurrency could have potentially astronomical value if it eventually replaces fiat currency — as many enthusiasts believe — this is still 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 about the following considerations.
- The rewards value: Cryptocurrencies tend to fluctuate wildly (10-15% price swings in a day are not uncommon), so there’s no way to predict what your accumulated earnings might be at a future date. Even if you plan to hold onto your rewards, it’s also possible that a given cryptocurrency will be worth zero dollars. You’ll also want to check for any extra fees related to crypto-to-cash redemptions, as they can undercut the value of your rewards.
- The rewards options: While some crypto cards do 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 that offer higher cash back rates. And despite the odd exception, most vendors don’t accept crypto, so it’s a bit of a hassle to actually 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 just offer Bitcoin or Ethereum, which further limits the flexibility of your rewards. If, say, Dogecoin becomes king and these currencies eventually tank for whatever reason, you’ll be left with holding the bag.
- Taxes: Whenever you cash out on cryptocurrency that’s appreciated in value, you have to pay capital gains taxes. Even if you’re only charged a low capital tax rate of 10%, that’s still a considerable chunk of change for any amount of cash converted from cryptocurrencies. On the other hand, regular cash back rewards are considered discounts by the IRS, and are therefore not taxed.
There’s nothing wrong with putting some money into crypto, but you might want to just deal with the exchanges directly. They will offer you more choices, and you can do a one-time purchase rather than signing up for what’s essentially a crypto subscription service through your credit card.
Plus, rewards cards already offer a sure thing in terms of instant cash value, even if that’s just $30/month based on your spending habits. That might not have the potential to grow 1,000%, but it won’t be 0% either.