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September 28, 2022

What is the Coinbase or Crypto.com Debit Card - Should You Use It?

With the growth of cryptocurrencies, the variety of products available to crypto consumers to help them spend that cryptocurrencies has grown as well. One of the most popular examples of tools that enable you to spend your crypto holdings on goods and services is that of the Coinbase Debit Card.

This card is backed by one of the largest crypto exchanges in the world and the card itself is a Visa, meaning that it's one of the biggest example of mainstream crypto usage to date. But, getting past the branding, is the crypto debit card from Coinbase actually something you want to use? Here's how it works.

The Coinbase Debit Card, Explained

The Coinbase debit card backed by Visa allows you to spend any cryptocurrency from your Coinbase or Coinbase Pro account. You'll want to note that this is a debit card, however, not a credit card, so when you use the card, it will result in the immediate use of the cryptocurrency holdings in your wallet for the exchange of goods you're purchasing with the card.

The card also works differently based upon what crypto you have in your account. If you hold USDC, then there's no fee on your transactions, however if you make the purchase with another crypto, then there will be a 2.49% transaction fee.

Another thing to note when investigating the debit card is that there's a $2,500 per day limit, meaning that you can only spend $2,500 per day, and then there's a $1,000 per day ATM withdrawal limit. For most people, these limits likely won't be an issue, but it's something to be aware of if you plan on making big purchases.

Lastly, since the card is just a debit card, there's no credit check or impact to your credit for signing up, and it's completely free to register with no annual fee. If you are wanting to be able to spend your crypto through a debit card, the crypto.com or Coinbase card should definitely be a top contender as you investigate.

How the debit card actually works

If you plan on using the coinbase or crypto.com debit card, it's important to understand what's actually happening behind the scenes. Since most merchants and shops don't accept cryptocurrency in their digital asset form as payment for goods, utilizing the debit card actually means that behind the scenes your crypto is exchanged for fiat at the exact time of purchase.

This allows retailers that only accept fiat currencies to accept cryptocurrencies through the proxy of the Coinbase or Crypto.com debit card. This process also avoids and confusing situations for you or the retailer when you go to pay. Not to worry though, all of this is done automatically and behind the scenes.

Whenver you're buying something or selling crypto, it is important to remember that you're incurring either a capital gain or loss and will then incur some form of tax burden. This does unfortunately mean that utilizing the debit card on a regular basis will cause a taxable event everytime you transact – under current regulations at least.

These tax guidelines are still incurred if you utilize USDC or other stablecoins as the crypto collateral for the card, so it's something to keep in mind if you do plan on utilizing this "pay in crypto" debit card option.

Luckily, if you hook your coinbase account up to a secure crypto tax tracker, like Ledgible, all of your transactions can be automatically categorized and collected, ready for tax filing when springtime comes.

The advantages of a crypto debit card

One might want to use a crypto debit card if you have fully bought into the ecosystem and are looking to utilize your crypto holdings just like you would your traditional currency holdings. There are other benefits, though.

Crypto debit cards often don't charge exchange rate expenses if you're travelling abroad, and you don't need to have a bank account to make transactions, serving as a form of open banking for customers.

Often, crypto debit cards will also waive withdrawal fees from ATMs, and there are even competitive cash-back rewards for users.

By far the biggest downside to utilizing a crypto debit card is the taxable events incurred on every transaction. However, with crypto being down right now, if your crypto holdings are sold at a loss, you can actually incur tax savings by claiming this loss as a capital loss on your taxes - turning this potential negative in bull markets into a massive positive in bear markets.

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