What Is a Crypto Rewards Credit Card?

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Over the past decade or so, Bitcoin and other cryptocurrencies have slowly gained traction as an alternative payment method and a speculative investment. Digital currencies have even entered the credit card space, with a handful of new cards offering rewards in the form of various cryptocurrencies instead of cash back, points or miles.

These credit cards provide a way for crypto enthusiasts and novices alike to earn digital currency without needing to exchange their cash for it. There are both benefits and drawbacks to earning crypto rewards this way instead of through traditional methods, however. Here's how to determine if a crypto-earning credit card is right for you.

How Do Crypto-Earning Credit Cards Work?

Before delving too deeply into crypto-earning credit cards, first make sure you understand how cryptocurrency works in general: Cryptocurrencies are digital currencies that can be used to buy goods and services, just like the U.S. dollar and other fiat currencies. Cryptocurrencies can also be traded like other investments. The value of cryptocurrencies tends to be extremely volatile and they are considered to be a speculative asset.

For the most part, credit cards that earn crypto rewards function like the traditional rewards credit cards you may be used to. The main difference is that you're earning cryptocurrency instead of cash back, points or miles on your everyday purchases. Crypto-earning credit cards allow you to earn various digital currencies with your everyday spending. Like regular rewards credit cards, the rewards rates can vary by card. Also, the types of currencies you can earn also depend on the card.

For example, the SoFi Credit Card is a cash back credit card that offers 2% cash back on all eligible purchases, but it also allows you to redeem your rewards for Bitcoin or Ethereum.

In contrast, the Gemini Credit Card, which currently has a waitlist, offers up to 3% back on dining, 2% back on groceries and 1% back on everything else. Cardholders can redeem their rewards for any of the over 30 cryptocurrencies on the Gemini platform.

The Pros and Cons of Crypto Rewards Credit Cards

If you're considering a crypto-earning credit card, it's important to go over both the benefits and drawbacks before you submit any applications.

Pros

  • It's an easy way to get into crypto. If you're interested in getting in on crypto, but you don't want to risk any of your own money, you can start earning some with your everyday spending—there's no need to change anything about your finances to make it happen other than the card you use to make purchases.
  • You can earn money on your credit card rewards. Cryptocurrencies are often used as a speculative investment, which means that you can actually earn money on top of the rewards you earn with your credit card. That's not an option with points and miles, and it only happens with cash back if you invest your reward earnings.

Cons

  • The value of cryptocurrency is volatile. While you can get outsized value from your crypto rewards, you could also lose a lot of it if the value drops. For example, the price of Bitcoin surged to an all-time high of nearly $65,000 in early 2021 before it was cut in half in just over a month. If you had earned Bitcoin rewards at the top, you would've lost a good chunk of value in the short term.
  • You'll lack flexibility. Some crypto credit cards don't give you many options to redeem your rewards. With the SoFi Credit Card, for instance, there are just two currencies from which you can choose, and the BlockFi Rewards Visa Signature Credit Card offers just one (Bitcoin). You can exchange your rewards for cash and use that to buy other cryptocurrencies, but that's another step you have to take to get what you want—and it'll involve added fees.
  • Cryptocurrency profits have tax implications. Traditional credit card rewards typically aren't considered to be taxable income, and you won't be taxed on the crypto you earn either. But if you receive crypto rewards and trade them for a profit in the future, you'll be on the hook for taxes on the amount you gained.

Is a Crypto-Earning Credit Card Right for Me?

If you're a crypto enthusiast, using a crypto-earning credit card for your everyday spending allows you to passively earn the digital currencies that you like. And if you're brand new to crypto, it can make it simpler to ease into it without a lot of risk.

However, it's important to note that cryptocurrencies are extremely volatile. If you want a safer way to maintain the value of your credit card rewards, it may be better to stick with a credit card that earns cash back, points or miles.

Also, you'll want to make sure you consider which redemption options are available before you commit. While one card may offer a better rewards rate, it may limit which currencies you can earn.

If you're concerned about taxes, one way to minimize your liability is by holding on to your cryptocurrency for more than a year. If you do this, the gains you earn will be subject to the long-term capital gains tax, which is generally lower than the tax rate on ordinary income.

If you want to invest in crypto but don't want to do so with a credit card, you may instead consider simply buying some directly with cash you have on hand. You can also take advantage of crypto-earning savings accounts, which promise extremely high interest rates on certain currencies.

How Does a Crypto Rewards Credit Card Affect Your Credit?

Because the only difference with these cards is the type of rewards you earn, they'll affect your credit score in the same way as a traditional rewards credit card. When you first apply, you'll be subject to a hard credit inquiry, which can ding your credit score a little, though the impact is temporary.

These cards typically require good or excellent credit, but you may be able to go through a preapproval process first, which can help you determine your odds of approval without hurting your credit score.

Once you open the account, the average age of your accounts will decrease, which can also impact your credit score. However, if you use the account regularly, keep your balance low relative to your credit limit and pay your bill on time every month, a crypto rewards card can help you build a positive credit history.

Check Your Credit Before You Apply

Because you may need good or excellent credit to get approved, take the time to review your credit. You can get your credit reports from all three credit bureaus (Experian, TransUnion and Equifax) through AnnualCreditReport.com. It's also a good idea to check your credit score before submitting an application, which you can do for free with Experian. If your FICO® Score is roughly 670 or below—a common threshold for good credit—consider taking some time to work on building your credit history more before you apply.

Review your credit report to find out potential problem areas, and take steps to address them quickly. Continue to monitor your credit over time to track your progress, then apply once your score is in a better position to help you get approved.

All information regarding the SoFi Credit Card, Gemini Credit Card and BlockFi Rewards Visa Signature Credit Card has been collected independently and has not been reviewed or approved by the issuers

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