Wondering how Crypto Cards work? Here are some key facts:
Crypto Cards in Canada aren’t really credit cards
While you’ll find a Visa badge on most Crypto Cards available in Canada – like the Cryptodotcom Visa – they’re not in fact credit cards but prepaid cards.
With a prepaid card, you’re not extended a credit limit but are required to use your own money instead. Think of it like a pseudo debit card but without an associated chequing account. You’ll have to load your own funds onto the card either via Interac e-transfer or by linking your digital wallet.
A Visa prepaid card can be used at any location a conventional Visa credit or debit card is accepted.
Since they’re prepaid cards, opening or using Crypto Cards won’t help, hurt, or have any impact on your credit score. It also means you won’t need to meet any income eligibility or credit score requirements and interest won’t ever enter the equation.
The launch of full-fledged crypto credit cards is on the horizon, though. The BlockFli Bitcoin Rewards Card – touted as the world’s first-ever crypto credit card – is currently on waitlist in the U.S. and will allow cardholders to pay with credit and earn Bitcoin rewards. Meanwhile, the cryptocurrency investment fund FD7 Ventures recently announced an investment stake in BitcoinBlack, a firm with plans to offer Canada’s first-ever bitcoin credit card.
Technically, you’ll still spend Canadian dollars with Crypto Cards
You might think a Crypto Card would let you pay directly in cryptocurrencies like bitcoin with a simple swipe or tap, but in reality, there are a few extra steps involved.
In the case of the heavily-advertised Cryptodotcom Visa Cards, you’ll load Canadian dollars on the card and spend in Canadian dollars. While you can technically link cryptocurrencies via your digital wallet, you’ll need to convert (aka sell) the crypto to Canadian dollars using the Cryptodotcom app first before you can load it onto the card and spend it.
Other cards, like the Spend Visa Card, also help to facilitate cryptocurrency transactions. But again, you’ll have to convert your crypto into Canadian dollars in order to add it to your card’s balance.
The real benefit these cards offer is they allow you to seamlessly and instantly trade your crypto into Canadian dollars to make purchases.
As more Crypto Cards get released, new models of loading and spending cryptocurrencies are expected to be introduced. For instance, the Nexo Card (currently in early access) lets you leverage the value of your cryptocurrency investments to borrow money which you can then use to make purchases. It’s kind of like you’re borrowing against the value of your crypto. This roundabout solution means you can dip into the value of your crypto assets without having to sell them off or convert into Canadian currency first.
Earning Crypto rewards
With virtually all Crypto Cards, you’ll be making purchases in Canadian dollars and earning rewards in the form of cryptocurrency on every dollar you spend.
There is a catch though: you’ll likely earn what’s dubbed “crypto cash back”.
For instance, eligible cardholders of the Mogo Prepaid Visa can earn 1% in bitcoin cash back. What that means is you’ll be earning 1% cash back, and those cash rewards can be used to buy bitcoin via their trading platform. You’re not in fact getting 1% in straight bitcoin on every purchase (that would be kind of crazy considering 1% of bitcoin is currently valued at around $690).
In other words, if you make a $100 purchase, you’ll earn $1 in cash back, which can then be used to purchase $1 worth of bitcoin (currently 0.000015 BTC). If the value of bitcoin were to suddenly double, you would still earn the equivalent of $1 worth in bitcoin – your earn rate wouldn’t change.
It’s also important to note that many Crypto Cards out there don’t actually earn bitcoin but altcoins – aka alternative cryptocurrencies. Not all altcoins are created equal, and as of today, all altcoins are both less valuable and popular than Bitcoin. With the Cryptodotcom Midnight Blue Card, for example, you’ll earn 1% cash back paid out in CRO Tokens – an altcoin native to Cryptodotcom. Whatever you do with your crypto rewards is up to you, however. You can keep holding rewards in CRO Tokens, trade them for another crypto like bitcoin or ethereum, or even sell it for Canadian dollars – all via the card’s app.
The most critical thing to know here is that your earn rate on every dollar you spend will likely be a fixed percentage and won’t change or multiply in correlation with cryptocurrency valuations. What will fluctuate is the value of the cryptocurrency rewards you’ve built up over time. In a way, it’s like you’re using the card’s cash rewards to slowly build a crypto investment portfolio.
You might have to buy an investment stake
Depending on the Crypto Card in question, you might have to invest quite a large sum of money into the card’s associated cryptocurrency (or trading platform) to get the best card available.
Let’s look at Cryptodotcom Visa’s portfolio of cards as an example.
You can opt for the entry-level Cryptodotcom Midnight Blue Card with no strings attached and earn 1% on all purchases.
But if you choose to invest with the card provider by holding a $5,000 stake in its native CRO Tokens cryptocurrency, you’ll be upgraded to the Royal Indigo Card and earn 3% on your spending. Invest a $50,000 stake and you’ll earn 5%. Invest a whopping $500,000 and you’ll rack up an impressive 8% on every dollar spent.
You’ll be required to hold the stake for at least six months. And note, this stake isn’t a fee or an expense, but an investment that can go either up or down depending on the crypto’s performance. Before making the commitment, you’ll want to think about the associated risk and opportunity cost.
