Crypto Rewards: Niche Market or Game Changer?

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  • Over the last few years, the frenzied speculation of cryptomania has given way to an understanding that cryptocurrency is here to stay.
  • More and more, businesses are accepting major cryptocurrencies like Bitcoin as payment, and credit card providers are starting to offer them as rewards.
  • Earning cryptocurrency as cashback is a major innovation, with unique challenges and benefits for consumers.
  • Time will tell whether this remains a niche offering for crypto enthusiasts, or whether more people are drawn to the opportunity to earn a solid return on their rewards.

Some New Vocabulary

Cryptocurrency? Crypto Rewards? As cryptocurrency starts to change our industry, it’s important to keep up with new concepts.

By now, you’ve almost certainly heard of cryptocurrency and its most famous example, Bitcoin. Cryptocurrency is a fairly complicated topic, but in its most basic terms, it describes a digital token that can be used as money. Because cryptocurrencies like Bitcoin have a limited amount that can be produced, they have built-in scarcity and so they gain value over time, like gold. As they gain usefulness because more companies accept them (or credit cards offer them as rewards), they also gain value.

Crypto-rewards cards are credit cards that offer cashback in the form of some cryptocurrency, often Bitcoin. Just like a cashback card, some percentage of your purchase will we be credited to your account in the form of Bitcoin, based on the current exchange rate. For example, a 2% Bitcoin cashback card would give you two dollars’ worth of Bitcoin for every hundred dollars you spend. 

Let’s discuss some pros and cons of the unconventional world of crypto-rewards.

The Benefits of Crypto Rewards

The most exciting thing about earning cryptocurrency rewards is the growth you can see over time. It’s safe to say that no other rewards program gives you a fighting chance at earning back every dollar you spend, but with the rapid rise in the price of cryptocurrencies, this could actually happen. In less than three years, Bitcoin has skyrocketed from just over $3,000 to around $65,000 today. At 2% “Bitcoin-back”, you’d be nearly halfway to earning back every penny you spent in 2018, just by letting your earned Bitcoin appreciate. Airline miles, hotel points, and even cashback are great incentives, but none offer a chance at that kind of return on investment.

Aside from the fact that they tend to grow quickly, another benefit (or drawback, depending on how you see it) of crypto rewards is their complexity to convert to cash. Converting Bitcoin to cash will likely entail some added expenses and potential tax liability, as we’ll discuss in the next section. This makes it easier to simply watch your crypto coin purse grow, rather than cashing out often. This built-in incentive to save could help keep you from spending your rewards on impulse buys, increasing the amount that you end up keeping.  

Rollercoaster Rewards, Tax Challenges

While you may like the prospect of racking up fast-appreciating cryptocurrencies up each time you spend, there are some challenges that traditional cashback programs simply don’t present. One is the volatile nature of the rewards program, making it a tough decision to withdraw if Bitcoin or your preferred cryptocurrency finds itself at a low point.

In early 2018, Bitcoin lost about 75% of its value over the year, with other major cryptocurrencies faring about the same or worse. Hindsight is 20-20, and we now know that this drop was a blip on a steep long-term growth path (today, Bitcoin is worth more than double its 2017 peak). However, imagine if your $1,000 in hard-earned rewards fell to $250 in a matter of months. How would you feel? Perhaps anxiety and frustration come to mind.

It could be a source of stress to watch your rewards shrink, and a temptation to turn your earned Bitcoin to cash while it has still some value. While many are drawn to the wild ride of Bitcoin, the average credit card user may find the up-and-down swings of these currencies to be more stressful than exciting.

The other complication is tax reporting. Cryptocurrency is (ideally) an appreciating asset, and you’ll likely have to pay gains when you eventually cash out. Crypto rewards are a tax reporting challenge for both card providers and individual consumers. For example, providers will need to figure out how to give their consumers a cost basis for their Bitcoins in order to report their gains when they eventually sell. Worse, they may simply leave it to customers to figure out. Both card providers and individuals could be in for a tax headache when it comes to proper reporting, especially since tax laws haven’t quite caught up to the reality of cryptocurrency.

Crypto Rewards: The Latest Chapter in a Revolution

We still don’t know exactly what cryptocurrency’s role in the economy will be, but one thing seems certain: it’s here to stay. Crypto rewards cards are the latest chapter in what will be a long and exciting history for these digital tokens. How much this offering takes hold, and who chooses to replace cashback with coinback, is yet to be seen. Here at CoCard, we strive to stay ahead of these innovations, helping our clients and their customers get the most out of our relationships. Moving forward, we will tailor our services to meet the evolving technology and consumer preference landscape, no matter what shape it takes.