Owning cryptocurrencies like Bitcoin has long come with a drawback: There are few practical opportunities to spend them since so few merchants accept them, and for those stores that do, transactions can take 10 minutes or more to clear.
Now cryptocurrency giant Coinbase is hoping to change that by rolling out a debit card that can be used at any business that uses the Visa network. The card will allow customers to draw funds from various cryptocurrency accounts, while letting the merchant instantly receive payment in U.S. dollars.
Coinbase, which has been testing the debit card for months in Europe and the U.K., says U.S. customers will be able to obtain one later this year or in early 2021.
Customers who make purchases with the debit card will receive rewards in the form of a 1% rebate paid in Bitcoin, or a 4% rebate paid in a more obscure cryptocurrency. At the outset, the 4% reward option will come in the form of XLM, also known as Stellar Lumens, with other reward options to be introduced in the future. The card looks like this:
This reward system could help overcome another drawback to spending cryptocurrency, which are the fees. For every transaction using the debit card, Coinbase will charge a 2.49% levy.
This fee makes using the debit card an unattractive option in terms of value—especially since some credit cards offer 2% cash back in rewards with no fees—but there is an important exception.
The exception is when Coinbase customers draw on their USDC accounts. USDCs are a type of cryptocurrency known as stablecoins, which are pegged to the U.S. dollar at a one-to-one value. In practice, this means Coinbase users can go shopping with their USDC accounts with no fees while earning 1% in Bitcoin (or 4% in a more exotic cryptocurrency).
Spending USDC or other stablecoins also offers an upside compared to other cryptocurrencies in that such purchases won’t trigger a taxable event—which is the case under current IRS rules for Bitcoin and other forms of digital money.
Max Branzburg, who leads consumer products at Coinbase, says spending USDC will be one of two prime use cases for the new debit card. The other use case, he says, is among customers who find themselves short of cash and want to dip into their cryptocurrency holdings for large or urgent one-off purchases.
Branzburg says the ability to use a debit card to draw on cryptocurrency assets is far superior to the alternative, which entails “getting stuck in the traditional financial system”—a process that can involve waiting three to five days while Bitcoin (or other cryptocurrencies) are converted to fiat currency.
Coinbase’s announcement comes several months after BitPay, a much smaller competitor, announced a U.S. debit card of its own.
More broadly, Coinbase’s debit card rollout comes as the company is transforming its app to offer a variety of traditional financial services—from lending to interest-paying accounts—and as Bitcoin enjoys an unprecedented level of mainstream adoption, including its embrace by the likes of PayPal and Square.
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