If you invest in Bitcoin, Ethereum, Dogecoin or any number of other cryptocurrencies, you might want to spend some of your holdings. Crypto debit cards are a tool that can make it easier for consumers to use cryptocurrency with merchants who don’t accept their digital coins outright.
But be sure to read all the fine print before you open a card. Companies may advertise rewards programs or say they have low fees, “but they don’t advertise all the other things that you are being penalized for or paying fees for,” says Merav Ozair, a blockchain expert and fintech professor at Rutgers Business School.
How Do Crypto Debit Cards Work?
When you make a purchase with a crypto debit card, the merchant receives payment in a fiat currency, a government-issued currency such as the U.S. dollar. While regular debit cards are connected to bank accounts, many crypto debit cards are prepaid cards that you may be able to fund with a cryptocurrency wallet.
If you fund your card with cryptocurrency, exactly how your funds get from crypto to dollar will depend on your card. You may be able to keep your currency in crypto form until you start a purchase, or you may need to convert crypto to dollars in advance.
Which cryptocurrencies you can use to fund your card also depends on your debit card. The Voyager Debit Mastercard, for instance, allows you to spend USD Coin, a currency whose value is pegged to the U.S. dollar, while the Crypto.com Visa Card accepts 23 cryptocurrencies, including Bitcoin, Litecoin and Ethereum.
What Are the Pros and Cons of Using a Crypto Debit Card?
Crypto investors can do many things with their cryptocurrency. Be sure to weigh the pros and cons of crypto debit cards before opening one.
- You can earn rewards. When you spend with your crypto debit card, you could earn a percentage back in crypto. Keep in mind that you may have to hold, or “stake,” a certain amount and type of crypto to be eligible for rewards. In all cases, make sure the rewards are worth any fees that may be attached. “You have to do the math,” says Ozair. “(Do) the rewards really outweigh the cost that I’m paying, the fees? Because the fees are pretty steep.”
- Convenience. If you want to spend your crypto in everyday life, crypto debit cards are one way to convert your coins to cash. Crypto debit cards may also allow users to make ATM withdrawals and receive direct deposits.
- Potentially high fees. Depending on your card, you could be on the hook for transaction fees, inactivity fees, a physical card fee and more. With Coinbase, for instance, you’ll be charged a 2.49% transaction fee when you use your debit card with any cryptocurrency besides USDC.
- It can be expensive to use crypto you hold with a different company. If you have a BitPay card, for instance, you won’t be able to use it to spend bitcoin you hold in a Coinbase wallet unless you transfer that bitcoin to your Bitpay wallet first – and this process comes with a fee.
- You could owe taxes. When you sell cryptocurrency to fund your debit card, you may trigger a taxable gain or loss. And though regular credit card or debit card rewards aren’t taxed, it’s unclear whether the same is true for rewards from crypto debit cards. “I would advise people to really be careful and educate themselves about the tax implications when it comes to these credit and debit cards before they just run off and buy 10 pizzas, six lattes, and a stereo system and whatever else it is you do with a crypto debit or credit card,” says Mishkin Santa, international tax director and partner at The Wolf Group, a tax advisory firm.
Consumers should plan to track their cryptocurrency income and losses for their tax returns. “You don’t necessarily have to create a 1099, but you’ve got to create something that’s equivalent to that,” says Santa. “If you can’t substantiate transactions, you’re going to lose if it comes to the IRS auditing you.”
How Can You Choose a Crypto Debit Card?
If you already have cryptocurrency in one company’s wallet, it would likely be most convenient to open a crypto debit card with that company. But not all companies that offer crypto wallets issue crypto debit cards in the U.S., or cards may only be available to some customers.
If you do have cryptocurrency wallets with multiple providers that also offer crypto debit cards, you can compare rewards programs. Several crypto debit cards offer crypto rewards, but the amount and type of crypto you earn varies by card.
With a Crypto.com Visa Card, for instance, rewards come as Crypto.com Coin, or CRO. You can earn 1% CRO Rewards with the lowest tier of the card, available to users who have owned and held CRO tokens for at least 180 days. The maximum rewards level is 8%, but you’ll have to stake at least $400,000 worth of CRO with Crypto.com for at least six months to qualify – a hefty ask.
In contrast, Coinbase Card offers up to 4% back in a digital asset chosen by the user. Note that Coinbase currently has a waitlist for its debit card.
You shouldn’t just look at rewards, though. Also compare fees and other card terms to make sure the product is worthwhile.
Even if you only have one crypto debit card option, you may have a choice between funding your card with a stablecoin or a more volatile asset. If you use a coin backed by the U.S. dollar, you typically won’t face the same tax headaches when you sell your cryptocurrency to use your card, Santa says.
Or your card may make the choice for you. Voyager Digital is launching a crypto debit card based on USDC in part to avoid putting users “in an uncomfortable tax position,” says Stephen Ehrlich, CEO of Voyager Digital.
Should You Get a Crypto Debit Card?
Whether you should get a crypto debit card depends on factors such as your investments in crypto and whether the card you’re considering is worth its fees and other requirements.
If you’re looking for a way to convert your cryptocurrency into cash, a crypto debit card could make sense for you. But a debit card isn’t the only product that makes it easier to spend cryptocurrency. Alternatives include crypto credit cards and Checkout with Crypto from PayPal.
And if you’re just looking for a way to learn more about crypto, Ozair recommends having a crypto wallet and experimenting with that rather than opening a crypto debit or credit card.
“If you want to experiment, experiment with all kinds of other applications that are offered by all kinds of DeFi,” she says.