Why Crypto Credit Cards Are the Ultimate Hack for Real-World Payments

Why Did We Need Credit in the First Place?

In the traditional, inflationary financial system, before the inevitable deflationary confrontation of technology, debt and credit worked to our benefit. Jeff Booth lays the timeline out masterfully in his book, The Price of Tomorrow.

“We expect to start our careers, earn more over time, and hopefully at the same time outrun rising prices. If we are lucky enough to have bought assets, the rising prices of those assets, because of inflation, creates longer-term wealth. If we leverage those assets by adding debt, our return is even greater because the asset increases in value while the dollars that we pay back in debt are priced in today’s dollars….we pay back the debt tomorrow in dollars that are worth less.”

Enter Cryptocurrency and DeFi

As more and more users incorporate cryptocurrency and DeFi (Decentralized Finance) into their lives, there will inevitably be more consumer products developed. As cryptocurrency becomes mainstream we will adapt and adopt new ways of lending, borrowing, staking, buying, and spending. Markets are becoming more competitive over time, user numbers are exploding in the space, and total market cap of major coins are rising.

Network effects are putting pressure on the traditional economic system to compete or get out of the way, and many are inevitably considering when and if they’re going to enter the arena. Many already have, and many others will be left behind.

Crypto Credit Cards: The Early Adopters

We’re already seeing huge interest in the market. According to Blockworks, in the first half of 2021 there was over $1 billion spent on crypto-linked credit cards through Visa alone. That billion dollars in transactions went to almost 70 million vendors in diverse sectors. Visa even published their own blog post in their innovation hub, bragging about how Visa helps cryptocurrency move (ironically, Visa bought a cryptopunk before putting bitcoin on the balance sheet).

“Today the value of crypto assets held in regulated digital wallets is in the hundreds of billions. For the tens of millions of people using those platforms, one of the simplest ways to spend crypto is through a Visa card.”

Mastercard is getting in the game too, having become Gemini’s exclusive credit card supplier and acquiring blockchain analytics company CipherTrace.

The Crypto Adoption Curve

What does the entrance of major fintech players to the crypto credit card space mean for Bitcoin and crypto’s adoption curve?

A look at the potential S-Curve of Bitcoin. Credit of Osprey.

Right now we’re in the middle or late stages of the early majority. Many in the industry believe next up is major institutions and governments, who will make up the bulk of the late majority as assets like Bitcoin become mainstream.

For the late majority and the laggards, seeing the words ‘Visa’ and ‘Mastercard’ next to innovator logos like Strike, Gemini, SoFi, and Crypto.com may add the credibility needed to on board the next billion crypto users. The rub, obviously, is that in the immediate future Visa and Mastercard’s networks will become irrelevant as the cost of transactions across Bitcoin’s lightning network go to near-0 and transactions become seamless. Look no further than Twitter’s integration of Strike’s lightning payments API.

Why Would I Get a Crypto Credit Card?

Inflation plays a role here. If your hard earned dollars have less purchasing power over time, inevitably your rewards are going to experience the same inflationary pressure. The same thing that pushed or pulled you into buying your first Bitcoin, is the same thing that would lead you to your first crypto credit card, or push you away from a traditional rewards card.

Traditional credit card rewards schemes have some obvious limitations, one being geography. The rewards you earn on your American Express card are often not interchangeable with a nice meal at an Italian restaurant in Florence. One of the promises of crypto is that borders are meaningless.

One of the fundamental elements of the cryptocurrency market is that it cuts out the middleman. No open and close time, no fees, no approvals, and no questions. In the traditional credit card market, banks earn interest on your spending, but they also get a large percentage of the fee in the middle…

“…the fees merchant banks pay card issuing banks whenever a customer uses a card to make a purchase. – Blockworks”

Furthermore crypto credit cards make it easy to actually SPEND your crypto in the real world. Many of the popular crypto credit cards are issued by exchanges. Those exchanges will let you convert your crypto balance to dollars in a matter of seconds. It’s a seamless process that lets users skip the process of selling their crypto and then transferring to a traditional bank account. That process can take days (or even weeks in extreme cases) so it’s easy to see why crypto credit cards are appealing.

Could Crypto Credit Cards Unlock New Crypto Users?

Crypto credit cards unlock a whole new avenue for consumers.

Innovators and early adopters mainly hold assets like Bitcoin because of their permanence and store of value. Many don’t yet see cryptocurrency as a real medium of exchange that they can go out into the world and use to buy everyday goods and services. Crypto credit cards are an initial unlock, allowing us to spend and put dollars to work, while earning in crypto. We’re spending soft money that is losing purchasing power, and you are rewarded for doing so in hard currency that you believe will appreciate in value.

It allows us the potential to onboard skeptics and the late majority. For those who want to still operate in dollars as they normally would, this gives the user the chance to watch their crypto rewards grow over time. If they like what they see, they’re more likely to design their own long-term crypto strategy and will look back at their rewards card as one potential spark.

What Are My Crypto Credit Card Options?

Gemini, Coinbase, and BlockFi were big players to get in the game early and offer a traditional credit card model, focused on earning interest in cryptocurrency; primarily Bitcoin. Others, like Fold, focus on rewards and savings on other platforms. Others are closer to a ‘pre-paid’ model where you first boot a set amount of currency onto the card for spending and earning rewards, like Crypto.com’s Visa card.

CryptoVantage recently did a deep dive on the 16 best crypto credit cards. Check it out.