Credit cards from BlockFi, Gemini and Salt are joining cards from Coinbase, Binance and others in making the transition to a crypto-only life easier. But what exactly is a crypto credit card – and are they worth the effort?
Although they’re often promoted as ‘credit cards’ all of the existing crypto cards prior to the launch of the BlockFi, Gemini, and Salt cards are actually debit cards – which means a user must load funds into the cards before being able to use them for spending.
The new cards will therefore be the first true crypto ‘credit’ cards – although how a user qualifies for a credit limit and what the limits will be is unclear as the BlockFi card has only been released to select users and the Gemini and Salt cards have not officially launched yet despite being first announced almost a year ago.
How Do Crypto Credit Cards Work?
Given the other crypto cards are actually debit cards, the two main benefits of a normal credit card are immediately negated. The first is a pre-arranged credit limit, and the second is extended credit (typically 55 days from the start of a billing month). The BlockFi card does offer this extended credit and the Salt and Gemini cards likely will as well.
It works like this – with a traditional credit card with a $10,000 credit limit, for example, you could buy a $9000 car on the 1st of May, and not have to worry about coming up with the cash until around the 20th of June. And as long as you pay the card’s full balance on the 20th of June, you won’t have to pay any interest on the purchase either.
Furthermore, if you can’t afford to pay the whole $9000 back then, you can opt to just pay the minimum, which is usually 2% – so $180. This won’t impact your credit score, but you will have to start paying interest at that time on your outstanding balance.
Depending on your ‘creditworthiness’ you could be paying up to 24.99% interest on your outstanding BlockFi card account balance
Credit card companies aren’t angels. They know a high percentage of people won’t pay off their balances and once that happens they’ll be paying very high interest compounding daily – usually for months. The BlockFi card, for example, is charging from 14.99% to an eye-watering 24.99% interest on unpaid balances. Which rate you get is “based on your creditworthiness.” What this means is if you have a good credit score you pay a lower rate – but if you don’t, then you’re up for the highest rates.
This is how banks make the majority of their money and there is no reason to think the Salt and Gemini cards won’t operate the same way when they’re finally released. So one upside of a crypto debit card is that they won’t give you credit in the first place – so you won’t be able to fall into that debt cycle.
Cashback and rewards schemes
Most standard credit cards offer some type of rewards scheme. They usually work out to be in the 0.05 to 1% range (so spend $10,000 for a $50-100 reward) and are often provided as gift cards supplied by retailers who also pay the credit card company to be part of the scheme.
Many of the crypto cards we surveyed also offer cashbacks and rewards. The rewards are usually in the form of a cryptocurrency which will usually be the cryptocurrency that the card provider is affiliated with.
For example, the Ternio Blockcard provides its rewards in TERN – which is the native token of the Ternio project. Similarly, Binance offers rewards in its BNB token, but to qualify for the maximum 8%, cardholders must have a balance of at least 6000 BNB tokens ‘staked’ with Binance (more on staking later). Crypto.com offers rewards in its CRO token and Coinzoom’s rewards are in ZOOM tokens.
Rewards rates vary a lot and should be considered in context with what the transaction fee is for using a cryptocurrency. In most cases this is around 2.5% So a $10,000 transaction with the Coinbase Europe Visa card paying from your BTC balance will earn you $100 in BTC rewards from the card – but cost you $250 in transaction fees.
What is staking?
Staking in crypto terms is comparable to a fixed-term deposit or savings account with a traditional bank. It means you transfer or otherwise ‘lock’ an amount of cryptocurrency with a provider like Binance or Crypto.com and they pay you interest or provide other perks in return for you staking your crypto with them.
To qualify for full rewards with the Crypto.com Visa debit card you must stake $500,000 of CRO tokens
Staking is often required to receive rewards with many of these cards. The issue is that in order to qualify for the highest level of card awards, the amount of crypto you need to stake is unrealistically high with all of the cards. For example, in order to qualify for the 8% reward rate from Crypto.com, you would need to stake $500,000 worth of Crypto.com’s CRO token.
Similarly, to achieve the Binance card’s maximum 8% reward you would need to stake 6000 BNB tokens – which are currently worth $250,000. The Coinzoom card also requires staking for its maximum 5% cashback (paid in ZOOM) but is priced more reasonably at only 100,000 ZOOM tokens staked, which is around $3500.
The BlockFi card offers another twist on staking. In its case, cardholders who are holding stablecoins such as PAX, GUSD, or USDC in a BlockFi Interest Account can earn up to an extra 2% APY on top of their existing stablecoin APY (check here for current crypto interest rates).
The types of purchases that can earn rewards are also restricted with many of the cards. For example, if you pay to fill your car with gas with the Crypto.com card, that will not earn any rewards, and nor will paying your electric bill, buying gifts in a novelty store, paying for health insurance, hiring a graphic artist and 100 other obscure payment types with their card.
Who can apply?
Although most crypto exchanges and businesses are targeting a global audience they are quite restricted in who they can offer cards to as governments worldwide have been routinely unsupportive of crypto making inroads into the traditional finance sector.
The BlockFi and Gemini cards are only available to US residents. The Binance card is only available in some European countries – and specifically not the UK. The Ternio Blockcard is not available in the US or Europe and the Monolith Visa Debit card is not available in the US and many other territories. Coinbase offers two cards – one for Europe and one for the United States.
While cryptocurrencies are potentially anonymous, crypto cards are not and anyone wanting a card will have to successfully complete bank-level Anti-Money Laundering and Know Your Customer (AML/KYC) processes.
Also, the types of businesses where you can use the cards are frequently restricted. For example, Coinbase will not allow a user to pay with its US debit card at massage parlours, other crypto businesses, casinos, marijuana stores, money changers, the horse track, online casinos and gun stores.
The crypto finance sector is currently in its infancy. For anyone with a standard credit card issued by their bank, or a non-bank provider like American Express, the current crypto debit and credit cards available don’t offer any compelling reason to switch.
Overall their rewards schemes are complicated and require a massive financial commitment. Their fee structures are potentially expensive and need to be closely monitored to ensure you don’t end up with a lot of unexpected charges. They’re not widely available, they’re not anonymous and they’re restrictive in terms of how much of your own money you can spend and where you can spend it.
In addition to all that they’re also exposed to the huge price and security volatility that plagues the crypto space in general. The entry of true credit cards like those on offer from BlockFi, Gemini and Salt will likely shake the market up and lead to better products overall, but for now, the only customer these cards will likely appeal to is someone who has made a firm personal decision to ‘unbank’ themselves – for better or for worse.