The Bait to Crypto? Credit Cards Entice Users With Bitcoin Rewards — WSJ

By Vicky Ge HuangCrypto companies are turning to a tried-and-true trick from the banking world to entice new users, but with a major curveball.Coinbase is joining the rush to offer a credit card promising crypto rewards, with cardholders able to earn up to 4% back in bitcoin for everyday purchases. Applying for the card, available this fall, will require a subscription to Coinbase's premium crypto-trading service.High-profile crypto companies including the Winklevoss twins' crypto exchange Gemini and Crypto.com have announced similar offerings. The rewards would be paid through customer accounts on the exchanges.Unlike with cards that offer cash back, the value of crypto rewards can rise and fall sharply given the volatility of the digital currencies. That extra layer of risk comes on top of the usual credit-card pitfalls, such as high interest rates and debt accrual.The risk — and potential for gains — is part of the draw for some users. While crypto credit cards are still a niche product, bitcoin is trading above $100,000, with President Trump vowing to make America a "bitcoin superpower."Congress is also advancing legislation that is expected to make crypto a bigger part of the mainstream financial system.Sahil Zaveri, a 30-year-old cardiology fellow and bitcoin enthusiast in New York City, is among those who mostly see the cards' upside. He signed up for the Gemini credit card and likes that the rewards instantly hit his Gemini account after every transaction."Just imagine when bitcoin hits $200,000, my rewards would have already doubled," he said. "And I did nothing for it."Consumers should understand the terms and conditions of crypto credit cards and beware of potential security risks, said Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform."For example, who's the wallet provider if the consumer gets rewarded bitcoin? What happens if it gets stolen? Who's on the hook for that?" he said.Coinbase said the exchange has never lost customer funds as a result of a breach to its crypto wallets and that its credit-card bitcoin rewards are deposited in customer accounts. Gemini said its rewards are held in a Gemini wallet that is subject to the same security controls as other crypto held on the exchange.Some industry veterans also remain unconvinced by the idea of crypto rewards cards, citing their clash with the principles that draw many to the digital currencies."I got into bitcoin in 2012 and a lot of it was about privacy, libertarianism, etc. And credit cards, by nature, swap your private information across a variety of companies," said Graham Friedman, head of venture for crypto at Republic, an online investment platform.Friedman said his work travel makes an airline credit card that offers miles and seat-upgrades a more compelling choice. "I can just go buy my own investment assets."But for many crypto die-hards, the ability to accumulate more digital currencies through everyday purchases is an appeal that is hard to resist.Zaveri, the bitcoin enthusiast in New York, said he has also convinced family members and friends to sign up for the Gemini bitcoin card."The credit cards are almost like a bait, but a good bait," he said. "It gets your foot through the door, and from there, you can pivot and escalate your portfolio."Write to Vicky Ge Huang at [email protected]