Hey everyone! Hope you're all having a great Saturday.
This is a very long post. I wrote it over a week or two - some numbers may have changed. I’m looking at the concepts not actual timing of numbers. It shouldn’t affect this post.
TL;DR: I'm interested in discussing the best path to maximize usage and benefits of the Coinbase card. I want to hear other thoughts on how to use the card to get the most crypto.
I've been using the Coinbase card for two months now. I'm putting the general card details down, my thoughts and how I'm using it now. I'd love to hear other people’s thoughts on how to best grow your net worth + crypto through using it.
I searched around on Reddit and from what I could find there are a few posts about the card, but nothing going in depth on the optimal way to use it. I'm into budgeting, churning and personal finance - hearing other people’s thoughts in this area appeals to me.
TL;DR 2.0: I'm not a financial advisor, HODL.
Overview:
For those that don't know Coinbase has a debit card that you preload with USDC or a coin of your choice to spend while you use it. You must prefill your account with the crypto you choose to use the card. It uses that crypto to do your purchases, then gives you a small return of a crypto of your choice from a list of options based on how much you spend.
In general, I'm a big fan as it’s much easier to budget your money on a preloaded debit card. I put all my budget on it for the month and spend away knowing that I can't go over. Since it also has crypto back it competes with credit cards (CC) that offer cash back incentives. I try to avoid credit when the benefits aren’t there as it’s easy to overspend if you're not careful. CC benefits is why I historically would do most purchases with a CC.
I see the card as a great way to help me budget and not overspend. Since you get rewards similar to a CC I don’t feel like I’m missing out by using a debit card. Ultimately this makes it easier for me to avoid getting debt, and instead spending only what I have and growing my net worth.
Rewards:
For every dollar you spend with the Coinbase card you get:
4% back on -
- XLM
- GRT
- AMP
1% back on -
- BTC
- ETH
- DOGE
- DAI
Since there isn't any conversion cost to go from XLM, GRT or AMP to another coin on Coinbase I see them as the obvious choice. Maximizing your return at 4%. The follow up question I have is should you hold one of those coins or convert to something like BTC or ETH? You could also do a different altcoin you're bullish on.
I'm bullish on XLM thinking it has a lot of potential use for the future, but it is a bit stagnant and would love to hear other people’s thoughts on what they think is the right path for rewards.
Also, a little bit curious if anyone does the 1% back? I don't really understand why Coinbase gives 4% back in some, but 1% in others. I don’t see why someone would pick the 1% unless they don't like the 4% coins and don't want to have to manually do conversions to something like BTC occasionally.
Benefits aside I'm curious if they have deals where those coins are donating coins to Coinbase to support the 3% difference, with a goal to grow their user base? Where is that 3% difference coming from, I have no idea.
Fueling the Card:
To use the card, you need to have it pay with a coin of your choice that you have in Coinbase. I'm going to split these into two sections: USDC, and any other crypto. Read below to see why.
USDC
USDC has the below benefits going for it that I can tell on Coinbase:
- Free transfers from your bank and free conversion from dollars.
- .15% APY return.
- No fee spending USDC with the card.
The first point is nice since Coinbase charges a fee to buy almost all coins from dollars except USDC. Essentially if you have $100, you can turn it into 100 USDC and spend it on the card without a change in value.
Second point is meh IMO, it’s not much of a return on the dollars you keep, but it’s something so I'll call it out. Plenty of checking or savings accounts at normal banks offer similar returns. Also, inflation these days causes more damage than a .15% return gives.
Third point is important, other coins have a 2.49% 'conversion' fee that Coinbase charges to turn the coin of your choice into dollars to spend. I go into this more in the other crypto section below.
Other Crypto
For sake of simplicity and an example let us say I decide to use BTC as my coin to purchase with. You however can choose any coin you want, the math below should all be the same.
It has these negatives:
- Free transfer, but a conversion fee from dollars to BTC.
- 2.49% conversion fee for Coinbase to convert the coin into dollars to spend.
But it has this positive:
- Nonstable coins change value as an investment. BTC in the last month at the time of writing this has gone up 41.35%. Your 100-dollar budget as you spend through it could potentially become more money sitting there as you spend it.
- It is important to note here that this is great for a bull cycle. If an event like May happened again you could lose a lot of money from your budget. I would not recommend this method to anyone who doesn't have a fully stocked emergency fund especially if you use this method to buy necessities such as groceries. Do not invest money you can't afford to lose.
I currently am doing USDC to fund the card, it is safe, and I'm getting 4% back. What I'm curious about is would I make more if I spent BTC instead? What do others do and how has it worked out for you? To help dig in I've put an example below.
Example
For simplicity let’s say a person named Sydney has the Coinbase card and has a budget of 100 dollars a month for toys and games. They use their Coinbase card to only buy toys and games. This helps them keep a budget on not overspending in this area. To also help keep the example simple let’s say a month has four weeks, and Sydney spends 25 bucks a week of her budget. At the end of the month, she adds another 100 dollars.
Again an example, 100 keeps it simple, 4 weeks in a month, 25 bucks a week. Also helps keep math simple as 4% of 25 is 1 dollar for returns.
Sydney uses USDC
On the first of the month, she buys 100 USDC. She chooses to get 4% XLM back as her reward in this and the BTC example.
| Week | Spend | Balance + 4% XLM back |
|---|---|---|
| 1 | 25 USDC | 75 USDC, $1 XLM |
| 2 | 25 USDC | 50 USDC, $2 XLM |
| 3 | 25 USDC | 25 USDC, $3 XLM |
| 4 | 25 USDC | 0 USDC, $4 XLM |
Pretty simple, she had no transaction fees to use the card always getting to use 25 USDC a week and ends the month with no USDC and $4 of XLM which is great. XLM likely could have gone up a bit in a month but we'll ignore the rewards as both examples end with the same amount of XLM.
Sydney uses BTC
Buying $100 worth of BTC costs Sydney $2.99 so she ends up with $97.01 worth of Bitcoin in Coinbase.
Bitcoin changes price but overall has always gone up over long periods of time. In the last year it has gone up 363%, this example isn't meant to be perfect - only show the benefits of using BTC to spend. For simpler math we'll do 363 (gain in a year) / 52 (weeks per year) = average 6.98% gain a week.
I want to call out that this is purposefully simple. Some months like May Sydney could lose half her budget, but other months she could have extra budget to spend. Considering this is fun and games money and not essentials Sydney is OK with that risk if over time she comes out ahead. She understands that risking things like shelter, food, and utilities isn't worth it.
| Week | Spend + BTC conversion fee | Balance + 6.98% BTC value gain + 4% XLM back |
|---|---|---|
| 1 | $25 BTC + $.63 BTC fee | $79.561 BTC, $1 XLM |
| 2 | $25 BTC + $.63 BTC fee | $57.695 BTC, $2 XLM |
| 3 | $25 BTC + $.63 BTC fee | $34.304 BTC, $3 XLM |
| 4 | $25 BTC + $.63 BTC fee | $9.278 BTC, $4 XLM |
A bit more complex here, we see that buying BTC starts her off lower than 100 unlike USDC did. Also spending BTC has a 2.49% fee which for $25 dollars is $.63 cents. At first this seems like a bad choice, but given how BTC grows these fees are overshadowed, and Sydney ends the month with $9.278 BTC plus the same amount of XLM as if she used USDC.
Now if she decides she could spend those gains for more games, or keep that BTC to HODL which would slowly stockpile up.
How I'm using it
I do USDC and get XLM back which I keep as is. I budget and put my fun money and some of my necessity’s money on it for things like groceries. Since USDC doesn't change I feel safe doing this and its nice getting 4% XLM back on more purchases.
I'm not comfortable going all in on BTC for spending. If a month like May happens, I don't want to be unable to eat unless I sell other crypto investments.
What I'm thinking of changing to is putting necessity money in as USDC which won't change so I can get the 4% XLM return. Then putting my budget for non-essentials into BTC. On average over long term I'll go up and profit, if a month like May happens I'm fine - one month will be less exciting and I can work on the 1000 unfinished steam games and 30 unread books I own to keep me entertained for that month.
*edit for grammar/wording.
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