With crypto gaining traction, people are finding new ways to directly use their holdings for purchases, bypassing conversion to fiat currencies. Nowadays it is already possible to book flights, pay for hotels, buy software, and more with cryptocurrencies. However, adoption remains limited, making it difficult to rely solely on crypto for everyday expenses in most parts of the world.
Companies such as Crypto.com, Monolith, Binance are filling a gap by offering crypto debit cards for convenient purchases. These cards convert your crypto to fiat currency at the point of sale. However, this conversion triggers a taxable event in most countries. To avoid tax issues or losing money, users should either understand crypto tax implications or consider expense management services.
1 — What is Nexo?
Nexo is a centralized platform with over 6 million users globally, focused on providing lending solutions for digital assets. Supporting over 70 cryptocurrencies, Nexo stands out for its crypto-backed loans. This innovative feature lets you borrow cash in stablecoins or fiat currency without selling your crypto, meaning you avoid taxable events. Essentially, you leverage your crypto holdings to access cash. Nexo also provides exchange services, high-interest rates, competitive trading fees, a wallet to manage your assets, and a crypto card.
The platform withstood the crypto winter that led several companies to bankruptcy, showing its resiliency in dark periods. Besides, its native token $NEXO has shown impressive performance since its launch in 2018.
👉 Join Nexo with this referral link and win $25 worth of Bitcoin.
2 — The Nexo Card In 2022
Nexo partnered with Mastercard to deliver the first crypto card that allows users to spend without selling their assets.
Nexo’s credit and debit card While Nexo offers features like buying/selling crypto, swaps, interest earning, and cashback, similar to competitors, it truly sets itself apart with its crypto credit card. This innovative card lets you make purchases without triggering taxable events associated with selling crypto.
This is achieved, because all crypto deposited instantly turns into a backup for your credit line, the more the deposit, the more you can borrow against. In addition, the credit mode also provides 2% cashback if you choose to receive it in $NEXO.
The borrow interest rate is defined by two main features: Nexo’s loyalty tiers and LTV. The first is based on the ratio of $NEXO tokens to the other assets. The tiers are:
- Base: up to 1% of $NEXO. Provides a maximum borrow rate of 15.9% and cashback of 0%.
- Silver: between 1% and 5% of $NEXO. Provides a maximum borrow rate of 14.9% and cashback of 0.1%.
- Gold: between 5% and 10% of $NEXO. Provides a maximum borrow rate of 10.9% and a minimum of 2.9% with 0.25% cashback.
- Platinum: above 10% of $NEXO. Provides a maximum borrow rate of 7.9% and a minimum of 0% with 0.5% cashback. There are other additional benefits associated with the tiers, such as the interest rates and the withdrawal fees.
To qualify for the 0% interest rate, you’ll need to maintain a low Loan-to-Value (LTV) ratio. Think of LTV as a safety measure for the lender. It compares the amount you borrow to the value of your crypto holdings you put up as collateral. The lower the LTV (meaning you borrow a smaller portion of your crypto’s value), the less risky the loan is for the platform, and the more likely you are to get the best interest rate (0% in this case). Nevertheless, Nexo offers clear explanations of these concepts directly within their app, as illustrated in the following image.
When applying for a loan, you can choose to receive the funds in either stablecoins or via bank transfer.
Nexo’s card offers both credit and debit modes for ultimate flexibility. While debit mode triggers a taxable event, it lets you earn up to 14% daily interest on your holdings. You get all this with a free card, no monthly fees, and no maintenance charges.
👉 Join Nexo with this referral link and win $25 worth of Bitcoin.
Conclusion
Deciding on whether to choose the debit or credit mode, depends on the user and the taxes associated with the country of residency. The credit mode lets you avoid upfront capital gains taxes but comes with risk. Cryptocurrencies’ prices are volatile, and you’ll need enough collateral to cover your loan. This strategy might be more attractive during bull markets when prices are rising and the risk of your portfolio dropping is lower.
Users can also be creative and adapt to the government measures towards crypto. For instance, Portugal exempts taxes on crypto held for more than a year. This opens the door to a strategy: utilize the Nexo credit line in year one to bypass capital gains taxes, then seamlessly switch to the debit mode in year two to earn interest without any tax headaches.
