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David and Manuel Cáceres del Castillo started using a crypto debit card last year, intrigued by the new technology and inspired by the fact that their native country of El Salvador became the first country to accept Bitcoin as currency. legal.
The brothers are two of a growing number of people using crypto rewards cards: Visa recently shared that $2.5 billion was made by customers using crypto-linked Visa cards in the company’s first fiscal quarter of the year.
“Crypto rewards card” is a general term that could refer to crypto credit cards or prepaid crypto debit cards. David and Manuel opted for the Crypto.com Visa Card, a prepaid crypto debit card that links to their bank account and earns rewards on purchases.
David and Manuel Cáceres del Castillo started using crypto debit cards last year to earn crypto rewards on purchases they already planned to make. Courtesy of David and Manuel Cáceres del Castillo
The Cáceres brothers had learned about investing in cryptocurrencies from YouTube influencers and a friend who followed cryptocurrencies more closely. But knowing how volatile crypto can be, they didn’t want to jump to the bottom right away. “All YouTubers say they are not financial advisors and not to sell their house to invest money in cryptocurrencies,” says David.
So they opted for a crypto debit card as a lower risk first step towards crypto investment. This approach allowed them to participate in this new investment, but without derailing other financial priorities. The Crypto.com card allows users to earn $1 to 8% in crypto rewards, which is similar to some of the best cash back cards available.
“For any normal worker like me or Manuel, it is like a benefit. It’s a little-by-little process,” says David. “When you are not sure, you should go step by step.”
While crypto rewards cards offer a way to earn rewards on everyday purchases with crypto, it’s first important to know how you want crypto to fit into your overall financial plan. And opting for a crypto rewards card means skipping a cash back credit card that rewards you in direct cash, which you can use for travel, big purchases, or even crypto. Free crypto is also still very volatile, so consider how and if it makes sense as an investment.
Here’s what you need to know before signing up for a crypto debit card, as well as some first-hand advice from Manuel and David Cáceres del Castillo.
How do crypto debit cards work?
Crypto debit cards offer crypto rewards on everyday purchases made with the card. Unlike crypto credit cards, prepaid crypto debit cards like the Crypto.com card and other Visa debit cards from popular exchanges like Binance and CoinBase do not require a credit check. In addition to earning free crypto, these cards are designed to make it easier to spend your crypto on everyday purchases (although there are good reasons why you should probably refrain from buying things with crypto).
To register, you must first make sure the card is legal in your area. New York, for example, requires all virtual currency platforms to acquire a BitLicense before operating in the state. A product may be legal just a few hours away from state lines, but not in the state where you live. When you apply for your crypto debit card, you will be asked to enter your address, which will help determine your eligibility.
Second, you will need to link a bank account to transfer money to and from the card. You will transfer US dollars from your bank account to the card’s corresponding crypto exchange and then load crypto onto your card. You will need to think wisely about which currency to use, taking into account the transaction fees and volatility of the currency you want to use.
In this step, Manuel, who lives outside of Baltimore, and David, who lives in Helsinki, Finland, choose to fill their cards with stablecoins, which are pegged to the value of a fiat currency like the US dollar. Examples of stablecoins include USD Coin (USDC), Tether (USDT), True AUD (TAUD), pegged to the Australian dollar, and more.
“If you want to use your card on a daily basis, you will use stablecoins,” says David. If he does, he’ll help you stick to a regular budget, because other cryptocurrencies are so volatile that it’s almost impossible to know how much of each coin you’ll need ahead of time. (That’s why it’s generally not advisable to pay off your mortgage with Bitcoin.)
Once you’ve chosen a stablecoin, you can set up your card for automatic recurring transfers from your bank. This method works well for people with regular paychecks and predictable monthly bills who know they accept debit cards as a form of payment.
The Cáceres brothers pay their grocery, electricity, and water bills with their Crypto.com cards. Other bills, like mortgages and car payments, won’t always accept debit cards without an additional transaction fee, and so may not be worth it in the long run.
“I receive my salary in my bank account as usual,” says David. “And then I move every month our calculated budget for things like housing, groceries, for example.” David says that he spends about $600 on groceries a month. “So I buy $600 worth of USDC stablecoins right away. From there, I move it to the card.”
What are the risks of using a crypto debit card?
Cryptocurrency scams and theft are rampant right now, due to a combination of the newness of cryptocurrency, the ever-increasing amounts of cryptocurrency circulating around the world, and the new infrastructure on which systems are built. It’s a prime environment for what William Quigley, one of the original co-founders of Tether and co-founder of the Wax blockchain, calls “Olympic-level scammers” to test their skills and get away with all the new money circulating in the world. the crypto market. . Scammers stole more than $14 billion worth of crypto last year.
Be sure to thoroughly review your crypto card insurance policy in case of hacking. Also, use a card that allows you to transact in stablecoins for more predictable monthly transfers.
Even Crypto.com, a mainstream crypto exchange, was recently hacked and lost roughly $30 million. The breach exposed 483 digital wallets, but the company claims no customer funds were lost. However, the incident exemplifies why investors with a large number of cryptocurrencies should always use good digital wallet hygiene (no sharing passphrases or passwords), backup large amounts of cryptocurrency using cold storage, and inquire about the insurance policy for any debit card or cryptocurrency. credit card before opening one.
Traditional banks, by comparison, carry FDIC insurance to cover losses if their bank goes out of business. Unknown to many is that FDIC insurance does not cover loss or theft; that protection usually comes down to the bank’s individual insurance policies. Banks are covered by federal policy to cover customers for fraud, but the responsibility for reporting errors in a timely manner rests with the customer.
Similarly, you should know the ins and outs of any insurance protection or coverage you receive with a crypto debit card and what responsibilities fall to you.
What are the benefits of using a crypto debit card?
The benefits of using a crypto debit card are constantly changing and evolving. At a basic level, customers can earn crypto rewards with their daily spending. Crypto.com Card, for example, offers a fleet of tiered rewards cards that pay back at rates ranging from 1% to 8%.
To qualify for higher reward percentages, you must be willing to purchase the company’s native cryptocurrency, CRO, and hold it in the Crypto.com wallet app for at least six months. This process is called “staking” and it allows for more circulation and increases demand for the currency, thus increasing the value of the blockchain ecosystem. The longer and higher you bet, the more rewards you will get.
“The lowest is 1% cashback, then the next levels go up and up,” says David. At the highest levels, users can even benefit from free subscriptions to Spotify, Amazon Prime, and Netflix along with discounts on Airbnb and other purchases.
Something to keep in mind: Altcoins can be even more volatile and unreliable than Bitcoin or Ethereum, so it’s even more important not to buy more than you can afford to lose in case the coin eventually becomes worthless.
Do you have to pay taxes on cryptocurrencies obtained with a cryptocurrency debit card?
Yes, you will need to record the value of the cryptocurrencies you earned in US dollars and report that income on your tax return.
Centralized crypto exchanges like Kraken, Gemini and Binance currently report trading activity to the IRS, although this has not always been the case, according to Lisa Bragança, a former SEC branch chief and investment attorney. There are no consistent requirements yet as to what exchanges must report. Regulators are likely to want to increase tax reporting responsibilities for any crypto platform where decentralized finance (DeFi) activity takes place, and that would include activities such as staking (holding) crypto on a rewards card in exchange for monetary benefits. .
And Bragança believes the exchanges will deliver: “As these exchanges seek to gain more authority, they seek that kind of legitimacy.”
Conclusion: Are Prepaid Crypto Cards Worth It?
Each crypto debit card works differently and each has its own reward structure. Do your research thoroughly before signing up. Consider processing fees (just like you would with a debit card). Ask yourself if rewards fit your lifestyle.
If, like the Cáceres brothers, you are still interested in earning and learning about crypto by paying bills with a prepaid card, remember to take it slow. Cover the needs in your household budget, paying first attention to your long-term investments, home payments and emergency fund.
After that, a crypto rewards card can be an affordable way to get acquainted with decentralized finance while earning rewards.