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Sunday, October 17, 2021
Home Cryptocurrencies What to Know Before Applying for a Crypto Credit Card

What to Know Before Applying for a Crypto Credit Card

Nexo’s deal with MasterCard created a huge development in the world of crypto: for the first time, crypto holders could borrow against a variety of digital currencies and use them to make day to day transactions. With this co-branded crypto card, users could easily spend digital assets and not have to worry about conversion fees or minimum monthly repayments. Since then, more financial institutions have designed crypto credit cards, streamlining the process of paying with crypto while also giving users the opportunity to earn cryptocurrencies through their transactions. If you want to apply for a crypto credit card, here’s what you need to know.

How crypto credit cards work

ZDNet’s article on cryptocurrency credit cards notes that they work similarly to the cashback or rewards system of most credit cards. When you connect your crypto credit card directly to your crypto wallet, you can swipe your card to pay for transactions using cryptocurrencies. Then, your purchases will earn you rewards points that you can use to redeem cryptocurrencies. Just like any regular credit card, you’re required to pay back your crypto credit card balance.

Crypto credit cards still affect your credit score

How you manage your crypto credit card will still factor into your overall credit score. A helpful overview on AskMoney explains that the main credit history factors your credit score will use are your payment history, the total amount you owe, and the length of your credit history. So just like you would if you were using a regular credit card, you need to pay your balance on time each month and spend reasonably in relation to your income if you want to appeal to future lenders. And unlike with regular credit cards, the value of cryptocurrencies fluctuates a little more loosely, so the price of your chosen currency might change between the time you make a purchase and the time you pay off your balance.

Virtual currencies are taxable

CoinTracker’s head of tax strategy Shehan Chandrasekera explained that the IRS recognizes crypto as capital gains rather than currencies. According to the government, the act of buying something with cryptocurrency is the same as selling your coins for income. Therefore, most crypto transactions you make will trigger a tax event. The exception here are stablecoins. Since they have value tied to fiat currencies, stablecoins are not considered property, so stablecoin purchases cannot be taxed.

There may be restrictions on rewards

In a piece about crypto rewards cards, Forbes Advisor warns that the rewards on certain credit cards might be limited to the card issuer’s selection of cryptocurrencies. The Tomo Credit Card, for example, only offers reward points in Bitcoin, Ethereum, and Litecoin. On the other hand, the Upgrade Bitcoin Reward Card exclusively offers Bitcoin rewards. Be sure to check the range of cryptocurrency rewards a credit card offers before signing up for an account.

Satoshi Nakamoto created Bitcoin with the goal of making a universal currency. With cryptocurrency credit cards normalizing crypto payments and incentivizing users to earn crypto through their day-to-day purchases, the widespread adoption Nakamoto envisioned may become a reality in the near future.

Staff
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