Crypto Rewards

Crypto Rewards: Putting Your Hard-Earned Money to Work (for Bitcoin)

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Philip Matteini Consumers can use cryptocurrencies to purchase more items than ever in today’s market. Private businesses, municipal governments, and other entities have begun accepting digital assets as forms of payment, an increasingly attractive option with rising inflation rates. While there are a few circumstances in which utilizing cryptocurrency as a form of payment might make sense, it remains impractical in most cases. Cryptocurrency markets are notoriously volatile. In other words, the price one might pay for an item one day may not be what that same purchase is worth the next. Further, most companies experimenting with crypto payments, particularly in the retail space, only accept Bitcoin—this limits consumers that elect to invest in other cryptocurrencies. Nonetheless, Americans and foreign consumers alike are intrigued at how crypto might work as a payment method. According to a recent study by PYMENTS. com, nearly 20% of American adults indicate they’re likely to make a purchase using cryptocurrency. Crypto payments provide an alternative transaction method for individuals without the necessary requirements to open a bank account or access traditional financing. It provides for an increased speed of transaction in unique cases (e.g., high-value, international transactions) and a greater level of anonymity in comparison to the U.S. dollar. Still, the short-term price volatility of Bitcoin and other crypto assets render it ineffective as an electronic cash system. As Ollie Leech, Learn Editor at CoinDesk, said: “No person in their right mind would want to buy a coffee with Bitcoin. Say you pay $3 for [a] coffee, and tomorrow your Bitcoin could be worth $30.” Just one year ago, Bitcoin’s (BTC) value was under $10,000. Since then, it’s been priced as high as $65,000 and as low as $29,000. In an attempt to bridge the gap between cryptocurrency investing and the modern consumer experience, BlockFi, a New York City-based financial institution, released its crypto rewards Visa Card in the summer of 2021.Gaurav Gollerkeri, BlockFi’s GM of Payments, described the typical credit card experience as “entirely uneventful.” This, according to Gollerkeri, is directly juxtaposed by BlockFi’s crypto rewards offering, which garnered nearly 400,000 waitlist sign-ups

prior to its August 2021 release. Rather than getting hung up on ephemeral concerns surrounding asset volatility, BlockFi is seeking to empower consumers by letting them earn crypto while making everyday, essential purchases. BlockFi cardholders earn 1.5x points per $1 spent on the card. If you spend more than $50,000 in a twelve-month period, you can earn 2x points per dollar spent after that. Additionally, new cardholders can earn 3.5% back in Bitcoin rewards on all purchases made within the first three months of card membership; this offering is capped, however, at $100 in Bitcoin. Cardholders also stand to benefit from crypto that they hold onto and crypto trades conducted on BlockFi’s exchange. Users can earn a 2% annual percentage yield (APY) in rewards on stablecoin holdings, up to $200. You can also earn 0.25% back on eligible trades, up to a maximum of $500 in Bitcoin a month. Cardholders earn $30 for each person they refer to the card. The card has no annual fee or foreign transaction fees and runs on the Visa network. In October 2021, BlockFi announced its number of cardholders had grown to over 50,000 in the three months following the card’s release. Its product announcement at the end of 2020 made Visa the first financial institution of its kind to debut a crypto rewards card. Other companies, like BitPay and Coinbase, had already released debit cards that let users spend their crypto, but use credit. The BlockFi credit card represented the first product of its kind that incentivizes users to spend U.S. dollars in order to expand their crypto portfolios. Since the announcement, competitors including SoFi, Venmo, and Brex (a partnership between cryptocurrency exchange Gemini and Mastercard) have released their own versions of crypto-back rewards cards. In the months since its release, users of BlockFi’s crypto rewards card have strayed significantly from consumer spending patterns of U.S. credit card holders. Based on the most recent financial statements from American Express, Mastercard, and Visa, the average American credit card user spends about $20,000 per year. By contrast, given its three months of available data, BlockFi cardholders are on course to spend an average of $30,000 per year; 50% higher than major card issuers. Based on this projection, BlockFi card users are expected to spend more than $2 billion annually. BlockFi has reported that Costco, Amazon, and Home Depot are where their cardholders spend the most. Notably, during the first month following BlockFi’s release, Compass Mining, a retail-friendly Bitcoin

A new spin on crypto investing

mining company, was among the list of top ten merchants based on volume spend. In the past twelve years since Bitcoin’s release, timing crypto investments has proven a difficult task for retail investors. A report from consumer spending data provider Cardify demonstrated that investment deposits have historically lagged behind the price spikes seen in Bitcoin and other cryptocurrencies. Yet, with the exception of the Reddit-fueled trading frenzy witnessed in early 2021, consumers have never been so invested in crypto. For cryptocurrency investors, crypto currently represents a second all-time high 24.7% share of total investment deposits. On an indexed level, crypto deposits are up 6x from the January 2020 baseline. Proponents of crypto rewards argue that credit card products signify a safer introduction to the market as compared to retail investing. Because rewards represent “free money,” cardholders have viewed BlockFi’s card as a less risky option than simply investing their own money into crypto assets. Regardless of this perceived lesser risk, the opportunity cost of seeking crypto rewards as opposed to more traditional assets remains. Beverly Herzog, credit card expert and consumer finance analyst for U.S. News and World Report equates crypto-back programs with “giving up a sure thing.” As with any speculative asset, it’s true that the value of crypto credit card rewards could substantially increase over time—but it’s not a guarantee the way points, miles, cash back, and other common perks are with more conventional credit card options.

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