Mastercard made headlines with the launch of Nexo, a cryptocurrency-backed credit card. But unlike other attempts to fuse the financial sector and cryptocurrency markets, Nexo doesn’t actually let you spend your crypto. So how exactly does it work?
What Is Nexo?
Nexo is a cryptocurrency loan service that works for both large-scale loans and small purchases for which you would use a regular credit card.
Though labeled a cryptocurrency credit card, Nexo doesn’t actually let you spend your cryptocurrency. Instead, Nexo allows you to borrow against your cryptocurrency holdings (or hodlings).
In essence, it’s a crypto credit line that allows you to keep your Bitcoin and altcoins–or sell them as collateral.
How Does Nexio’s Loan Feature Work?
In addition to the cryptocurrency credit card that you will be able to use like a regular credit card, Nexio also offers a cryptocurrency loan feature for larger sums. In other words, a user can borrow fiat–meaning government-backed currencies like the US dollar or Euro–against their cryptocurrency holdings.
Other advantages include that it does not require credit checks, which can lower your credit score. It also does not require paying cryptocurrency taxes and withdrawal fees on sold assets and allows users to spend unused crypto assets while still holding them longterm.
How Much Money Can You Borrow?
It depends on your holdings and the cryptocurrency market.
On the official website, Nexo explains, ” Your Loan limit is based on the market value of the crypto assets in your Nexo Account. Additional credit is automatically and instantly available on the card upon appreciation of your crypto’s value.”
More specifically, this ranges between $500 to $2 million.
Which Cryptocurrencies Can Function as Collateral?
High-market cap coins and tokens are accepted as collateral within the Nexio network. Currently, these include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litcoin (LTC), Monero (XLM), Binance Coin (BNB) and NEXO. BNB and NEXO are both stablecoins.
Where Can You Use Mastercard’s New Cryptocurrency Credit Card?
Mastercard’s cryptocurrency credit card is accepted at all locations that process Mastercard. Per their website, there are over 40 million merchants who can already accept it.
The 45 fiat currencies available do not require currency exchange fees.
The Benefits of Mastercard’s Nexo Crypto Credit Card
Previous iterations of cryptocurrency credit cards permit spending your Bitcoin or altcoins at vendors, which can also mean incurring those fees and paying taxes on “selling” those assets.
Similar to stocks, cryptocurrency isn’t taxed until it is sold. Then, it is subject to short or long term capital gains taxes, like securities. By contrast, Nexo and Mastercard are theoretically offering a way to leverage cryptocurrency funds in the real world without incurring those taxes or transaction fees.