A new generation of credit cards are hitting wallets in 2021 that promise to replace rewards such as airline miles and hotel points with one of the best-performing assets of the last decade.
Several fintech companies this year plan to release credit cards that offer a percentage back in bitcoin on every purchase. A common sales pitch is that card-users will be able to passively invest in an asset that has appreciated nearly 200 percent year-over-year.
"Users that have been using us for the past six months are averaging 8.5 percent back on all of their purchases, which is something that you can't get anywhere else," said Will Reeves, CEO and co-founder of Fold, Inc., which currently only offers a debit card but plans to launch a credit card in the third quarter.
Fold uses a kind of lottery system, in which customers get a "spin" after every transaction for a chance to earn a certain percentage back in bitcoin. Lucky customers could get 25 percent to 100 percent back on a transaction, but the program overall averages 3 percent back.
The Chase Freedom Unlimited card, for comparison, offers 1.5 percent cash back on all purchases and rates of 3 to 5 percent on select purchases such as travel or dining.
Fold's average rate of 8.5 percent is only possible because of bitcoin's rapid appreciation, which other upstart card-issuers also admit is a main selling point for a bitcoin rewards card.
"I could earn $25 cash back or I could earn $25 of bitcoin, which 10 years from now could actually pay for that original purchase I made," said Thomas Harrison, who is developing a credit card with Gemini, a cryptocurrency exchange, that is set to launch this year.
All of this hinges, of course, on bitcoin's continued growth, which is a built-in assumption for the financial ecosystem emerging around cryptocurrencies and blockchain technology.
This new generation of credit card companies, all of which have backgrounds in other aspects of the crypto-economy, see bitcoin rewards as a way to pull more people into the fold.
"My vision is to prove out that bitcoin is a better, fundamentally more valuable reward than anything else on the market," Reeves said. "Every single card program that wants to continue to be relevant will be offering bitcoin as an option for people to earn."
'Digital Gold Dust'
Recent events have helped Reeves' case, as the coronavirus pandemic dampened the appeal of racking up airline miles or free hotel visits — though some argue this approach to credit card rewards always had a limited appeal outside of a select group of consumers.
"I think a lot of people see the frequent-flyer-mile, rewards-points game as this pretty antiquated thing," said Nic Carter, a founding partner of Castle Island Ventures, a venture capital firm focused on public blockchains. "If you're not a part of the PMC [professional-managerial class] and flying around constantly, credit card rewards don't really make that much sense to you."
Castle Island Ventures is an investor in BlockFi, a fintech company for crypto-investors that plans to launch a bitcoin rewards card this year. The card, which is backed by Visa, will offer a flat rate of 1.5 percent back in bitcoin on every purchase, in addition to other perks. Over 100,000 people have signed up.
Carter said bitcoin is a more appealing and democratic option than travel perks, especially for millennials like himself.
Though intuitively a bitcoin credit card might sound like a way to buy things with your bitcoin, Carter said the roll-out of rewards cards signals a shift away from thinking of the cryptocurrency as a form of payment, which in past years was a selling point for the cryptocurrency.
"I think it treats bitcoin more like a savings device, which is the appropriate way to treat it," he said. "Sure you can make payments with bitcoin, but that's pretty cumbersome, whereas this is a passive wealth saving device."
In a way, crypto rewards cards combine the ethos of the latest saving and investing apps, such as Acorns or Robinhood, with the benefit structure of a top-line credit card from a major bank.
This is a more appropriate application for bitcoin, said Carter, who calls the cryptocurrency a kind of "digital gold dust" designed to store value rather than facilitate transactions.
"We're kind of entering a new phase here in terms of mainstream acceptability," he said.
Getting in on the Action
Clearing the barriers to entry for the crypto-curious is indeed how Reeves sees Fold's role.
"There's a lot of people out there who have bitcoin now, but there's a ton more people who are curious about it but just don't quite know how to get it," he said.
Fold, which is also backed by Visa, currently has 10,000 customers using its debit card as part of an early access program. Another 200,000 are on a waiting list and will be eligible for cards in April.
Reeves said that in addition to the simple appeal of passively investing in a well-performing asset, Fold aims to gamify the experience of earning rewards, which is where its spin feature comes into play.
"You can spin and get 1 percent back, or you can get 100 percent back, or you can get a full bitcoin, which is about $60,000 right now," he said. "This is everytime you swipe the card, so it's turning this into a really fun, engaging experience every time you pull out the Fold card."
Gemini is taking a different approach, according to Harrison.
"One of the downsides of a lottery is there are many transactions where a customer might not get anything, or the rewards they get just aren't great," he said.
Gemini has not yet announced the details or the exact release date of its credit card, but Harrison said customers could earn up to 3 percent back in bitcoin on purchases.
What happens if bitcoin takes a nosedive, as it has at least three other times in the past? Harrison noted that this history of fluctuation has already primed bitcoin buyers for some volatility. Indeed, that's a large part of bitcoin's appeal.
"It is that volatility. It is that price action that drives people to purchase more crypto," he said. "We expect to see more transactions on our cards than you see with most cards in the market, because there is that financial upside, which just doesn't exist on the market today.
More purchases means more revenue for the card-issuer, which relies on interchange fees at the point of sale. These fees are also how Gemini plans to resupply itself with bitcoins, which it will then dole out to its customers.
Reeves is confident that the entire financial industry will soon be getting on board. Fold plans to partner with major credit card companies to use its infrastructure to offer crypto-rewards.
"The rewards market is about $200 billion dollars globally," he said. "It is my firm belief that within a year to a year-and-a-half, bitcoin will account for 10 percent of the total rewards market."
