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Crypto Visa Cards in Canada: What you should know

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Whether you’re a sceptic or believer, it’s hard to argue with the facts: cryptocurrency is going mainstream.

The world’s first bitcoin ETF was launched last month, trading crypto can now be done in a few taps on your smartphone with apps like Wealthsimple Trade, and major publicly-traded companies are investing big into bitcoin, including Tesla.

Even former naysayers have reversed their position on crypto. JP Morgan Chase, North America’s largest bank, whose CEO once called bitcoin “stupid” and a “fraud”, is now advocating investors should hold at least some crypto as a way to diversify portfolios.

It’s inevitable that the cryptocurrency revolution would make its way into our everyday finances and wallets. And that’s become more evident with the launch of a number of new Crypto Visa Cards in Canada.

Wondering how Crypto Cards work? Here are some key facts:


Crypto Cards in Canada aren’t really credit cards

While you’ll find a Visa badge on most Crypto Cards available in Canada – like the Cryptodotcom Visa – they’re not in fact credit cards but prepaid cards.

With a prepaid card, you’re not extended a credit limit but are required to use your own money instead. Think of it like a pseudo debit card but without an associated chequing account. You’ll have to load your own funds onto the card either via Interac e-transfer or by linking your digital wallet.

A Visa prepaid card can be used at any location a conventional Visa credit or debit card is accepted.

Since they’re prepaid cards, opening or using Crypto Cards won’t help, hurt, or have any impact on your credit score. It also means you won’t need to meet any income eligibility or credit score requirements and interest won’t ever enter the equation.

The launch of full-fledged crypto credit cards is on the horizon, though. The BlockFli Bitcoin Rewards Card – touted as the world’s first-ever crypto credit card – is currently on waitlist in the U.S. and will allow cardholders to pay with credit and earn Bitcoin rewards. Meanwhile, the cryptocurrency investment fund FD7 Ventures recently announced an investment stake in BitcoinBlack, a firm with plans to offer Canada’s first-ever bitcoin credit card.


Technically, you’ll still spend Canadian dollars with Crypto Cards

You might think a Crypto Card would let you pay directly in cryptocurrencies like bitcoin with a simple swipe or tap, but in reality, there are a few extra steps involved.

In the case of the heavily-advertised Cryptodotcom Visa Cards, you’ll load Canadian dollars on the card and spend in Canadian dollars. While you can technically link cryptocurrencies via your digital wallet, you’ll need to convert (aka sell) the crypto to Canadian dollars using the Cryptodotcom app first before you can load it onto the card and spend it.

Other cards, like the Spend Visa Card, also help to facilitate cryptocurrency transactions. But again, you’ll have to convert your crypto into Canadian dollars in order to add it to your card’s balance.

The real benefit these cards offer is they allow you to seamlessly and instantly trade your crypto into Canadian dollars to make purchases.

As more Crypto Cards get released, new models of loading and spending cryptocurrencies are expected to be introduced. For instance, the Nexo Card (currently in early access) lets you leverage the value of your cryptocurrency investments to borrow money which you can then use to make purchases. It’s kind of like you’re borrowing against the value of your crypto. This roundabout solution means you can dip into the value of your crypto assets without having to sell them off or convert into Canadian currency first.


Earning Crypto rewards

With virtually all Crypto Cards, you’ll be making purchases in Canadian dollars and earning rewards in the form of cryptocurrency on every dollar you spend.

There is a catch though: you’ll likely earn what’s dubbed “crypto cash back”.

For instance, eligible cardholders of the Mogo Prepaid Visa can earn 1% in bitcoin cash back. What that means is you’ll be earning 1% cash back, and those cash rewards can be used to buy bitcoin via their trading platform. You’re not in fact getting 1% in straight bitcoin on every purchase (that would be kind of crazy considering 1% of bitcoin is currently valued at around $690).

In other words, if you make a $100 purchase, you’ll earn $1 in cash back, which can then be used to purchase $1 worth of bitcoin (currently 0.000015 BTC). If the value of bitcoin were to suddenly double, you would still earn the equivalent of $1 worth in bitcoin – your earn rate wouldn’t change.

It’s also important to note that many Crypto Cards out there don’t actually earn bitcoin but altcoins – aka alternative cryptocurrencies. Not all altcoins are created equal, and as of today, all altcoins are both less valuable and popular than Bitcoin. With the Cryptodotcom Midnight Blue Card, for example, you’ll earn 1% cash back paid out in CRO Tokens – an altcoin native to Cryptodotcom. Whatever you do with your crypto rewards is up to you, however. You can keep holding rewards in CRO Tokens, trade them for another crypto like bitcoin or ethereum, or even sell it for Canadian dollars – all via the card’s app.

The most critical thing to know here is that your earn rate on every dollar you spend will likely be a fixed percentage and won’t change or multiply in correlation with cryptocurrency valuations. What will fluctuate is the value of the cryptocurrency rewards you’ve built up over time. In a way, it’s like you’re using the card’s cash rewards to slowly build a crypto investment portfolio.


You might have to buy an investment stake

Depending on the Crypto Card in question, you might have to invest quite a large sum of money into the card’s associated cryptocurrency (or trading platform) to get the best card available.

Let’s look at Cryptodotcom Visa’s portfolio of cards as an example.

You can opt for the entry-level Cryptodotcom Midnight Blue Card with no strings attached and earn 1% on all purchases.

But if you choose to invest with the card provider by holding a $5,000 stake in its native CRO Tokens cryptocurrency, you’ll be upgraded to the Royal Indigo Card and earn 3% on your spending. Invest a $50,000 stake and you’ll earn 5%. Invest a whopping $500,000 and you’ll rack up an impressive 8% on every dollar spent.

You’ll be required to hold the stake for at least six months. And note, this stake isn’t a fee or an expense, but an investment that can go either up or down depending on the crypto’s performance. Before making the commitment, you’ll want to think about the associated risk and opportunity cost.

Not sure which card to choose? Let us help you

Are Crypto Cards safe?

Any emerging technology – especially when it’s tied to your finances – introduces new unknowns and concerns about safety. Truth is, answering the question about Crypto Cards and safety is multi-dimensional, so we’ve tried to break up the answer into a few sections.

First, let’s talk broadly about cryptocurrency.

One of the biggest arguments for crypto among advocates is its safety. All trades and transactions in cryptocurrencies are tied to the blockchain. Often referred to as a “digital ledger” or database, the blockchain records all historical and ongoing cryptocurrency trades and transactions. The blockchain is completely self-regulated, transparent, and decentralized, which means the data can’t be manipulated by intermediaries like banks (or potential fraudsters) and each transaction has unique identifiers that can’t be altered. The crypto ecosystem also effectively serves to remove “middlemen.” So if you were to theoretically buy something with crypto, the only entities directly involved would be you (the buyer) and the seller. Since purchases are direct and coordination between third-party institutions is minimized, your information is less exposed, therefore decreasing the risk of fraud. The fact crypto isn’t regulated by any governing bodies like traditional currency does mean the crypto held in your digital wallet isn’t insured by the federal government. In sharp contrast, the Canadian dollars you hold in a traditional bank account is insured by either federal or provincial regulators.

Phew, that was a lot. Now let’s shift the focus to Crypto Cards.

With Crypto Cards, you’re not actually spending cryptocurrency but Canadian dollars so it’s arguably a step removed from the whole blockchain ecosystem covered above. That means you’ll want to closely scrutinize who’s issuing the Crypto Card itself as opposed to the concept of cryptocurrency as a whole.

Cryptodotcom, for example, has partnered with DC Bank to issue its portfolio of five Crypto Visa Cards and hold your Canadian dollar funds. DC Bank is a federally insured bank in Canada (CDIC member), regulated by the Office of the Superintendent of Financial Institutions, and is a principal member of Interac, Visa, and Mastercard.

Meanwhile, the Cryptodotcom platform has over ten million users on its online crypto trading platform, was founded in 2016, and began launching Crypto Cards in Asia and the U.S. starting back in 2018. Cryptodotcom also just inked a global partnership with Visa.

All that’s not to say cryptocurrency and Crypto Cards haven’t seen their fair share of controversies. According to cybersecurity company CarbonBlack, cryptocurrency exchanges saw a total of $1.1 billion in thefts in 2018. In the same year, the bitpay Visa Prepaid Card was forced to close accounts and lost its membership with Visa due to breaching the processing network’s operating rules. There’s also the fact cryptocurrency is speculative in nature, highly volatile, and can experience double-digit swings in either direction. Like with any investment, there’s potential for growth but there are no guaranteed returns and risk is part of the equation.

Crypto Card versus credit card: which should you use?

Pitting the two against each other is like comparing apples and oranges.

A Crypto Card, especially one with no investment stake requirements, can be a low-commitment way to dip your toes into the world of cryptocurrencies and invest on the side without putting up any of your own money. The fact they’re prepaid cards also means you can avoid the potential pitfalls of overspending and racking up high-interest credit card charges. Plus, if you’re willing to invest large sums into crypto with the card provider (we’re talking tens or hundreds of thousands of dollars), you could unlock exorbitantly high rewards earn rates.

That said, considering how most Crypto Cards currently operate, you’re effectively just earning cash back rewards to buy crypto. There’s not much difference in sticking with a conventional cash back credit card to earn rewards on your everyday spending and just buying small amounts of crypto on the side with your own money. Unlike Crypto Cards, conventional credit cards also play a critical role in your credit history and score.

One thing is for certain: this is just the beginning for Crypto Cards and more options will be on the way soon, with each offering unique ways to manage, invest, and earn cryptocurrencies.

Ratehub.ca adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted. Information is gathered independently by Ratehub.ca and has not been provided/verified by the Crypto Card providers.

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