No ATM withdrawal fees, no foreign exchange transaction fees, attractive interbank exchange rates, free lounge access are some of the benefits touted by credit cards like MCO Visa card and TenX card. These are not regular credit cards but are cryptocurrency-linked cards. Whether you have no knowledge of cryptocurrencies or you are deep in the cryptocurrency game, such cards should not be treated as regular credit cards or debit cards as they do expose you to the inherent risks of cryptocurrencies. Here’s a guide to understanding cryptocurrency-linked cards and the dangers of using them.
This article presumes that you have some knowledge about cryptocurrencies, so read our primer to cryptos for a quick refresher.
What Are Cryptocurrency-Linked Cards?
Cards like MCO and TenX are linked to cryptocurrencies as they confer the cardholder to either 1) the ease of spending their cryptocurrencies as easily as normal fiat currencies (e.g. Singapore dollar or US dollar), 2) involve some form of accrual of cryptocurrencies through the use of the card or 3) involve holding or ‘staking’ cryptocurrencies to access the better reward tiers.
The TenX card functions as a debit card and allows cardholders to spend three popular cryptocurrencies (bitcoin, ether and litecoin) directly in a credit/debit card transaction by automatically converting the cryptocurrency to fiat currency via the Visa network. Think of cryptocurrency as another foreign currency; similar to how you can spend in Japanese yen while you are in Japan but pay your bill in Singapore dollar, you can spend in fiat currency (e.g. U.S. dollar) while you pay in cryptocurrency.
Unlike TenX, the MCO card does not allow the cardholder to load cryptocurrencies onto the card: all cryptocurrencies are first converted to U.S. dollars and then from U.S. dollars to the currency you spend in. Instead, the MCO card involves both cashback and staking.
Firstly, spending with the MCO card accrues 1% cashback in the form of their cryptocurrency, the CRO token. This means that the value of your eventual cashback reward depends on the price performance of the CRO token and may not be what you expect it to be.
Secondly, to unlock the better reward tiers including free lounge access and free Spotify/ Netflix/ Amazon Prime subscriptions, you would have to ‘stake’ CRO tokens. This means that you have to hold a fixed amount of CRO tokens in the company’s e-wallet for a period of six months. Past that initial period of staking, you would need to continue holding CRO to enjoy the maximum rewards benefits.
You Are Exposed To Cryptocurrency Risks
Your exposure to cryptocurrencies may be minimal or larger than expected, depending on the card you choose and how you use it. For example, if you are using the lowest tier of the MCO card, you would only be exposed to cryptocurrency through the value of your cashback tokens which is likely a small amount. However, if you are ‘staking’ or holding cryptocurrencies to spend, you are more exposed to the risk of cryptocurrencies.
The price volatility of cryptocurrencies can be extreme. Price spikes and crashes of above 100% are not uncommon. The unregulated nature of cryptocurrencies also means that there is no imposed limit on the price movement. It is entirely possible for a cryptocurrency to lose its value overnight or be shut down or delisted from an exchange because of regulatory compliance. Additionally, fraud and security risks cannot be understated. Even well-established names like Wirecard, which was a major cryptocurrency card issuer, can end up in insolvency, while well-known cryptocurrency exchanges like Mt Gox and Bitfinex have been hacked.
This means that potentially you could lose the value of the cryptocurrencies you are staking or holding. For example, you use $1000 to buy and stake CRO to get the higher rewards tier. However, CRO tokens suffer a price crash of 50% due to an alleged hacking attack on the company’s crypto-wallet. You would immediately suffer a loss of $500 in the value of your CRO tokens.
You Can Enjoy Similar Rewards Without The Cryptocurrency Risks
By using a cryptocurrency-linked card, you are opening yourself up to additional risks, especially if you do not have a strong knowledge about cryptocurrencies.
If you are purely interested in the rewards aspect of cards like MCO, there are many alternatives that you can consider such airmiles or cashback credit cards. These can give the same rewards including lounge access and cashback without the downside risks of cryptocurrency exposure.
If it is foreign exchange capabilities that attract you, you can consider Multi-Currency Accounts (MCAs) such as DBS MCA or UOB Mighty FX, or multi-currency mobile wallets like YouTrip or a multi-currency card like Revolut.
In general, you should be well-versed in the risks and rewards of holding cryptocurrencies before you apply for a cryptocurrency-linked credit card. Otherwise, you may be better off applying for the tried and tested gamut of airmiles or cashback credit cards or multi-currency accounts and cards.