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The Ebay Inc. Venmo application (app).
Andrew Harrer | Bloomberg | Getty Images

Venmo launched a credit card feature Tuesday that allows users to convert their cash-back rewards into bitcoin and other cryptocurrencies.

The development is part of the broader crypto strategy of Venmo parent PayPal. The company launched a business division dedicated to cryptocurrencies earlier this year after introducing crypto trading to its customers last fall, and this latest step gives it an opportunity to usher in a wave of new cryptocurrency holders.

The new Venmo feature isn’t quite crypto-back. Rather, it lets cardholders set an auto-purchase for the cryptocurrency of their choice to be made as soon as they receive their cash-back reward upon making a purchase with the card. That conversion is free of transaction fees to customers, and they’ll get the price of the cryptocurrency at the time of the conversion.

Bitcoin, ether, litecoin and bitcoin cash are available to Venmo’s 76 million users. Customers can’t move digital assets off the platform yet, so any rewards converted to crypto will remain in their Venmo app unless they choose to sell them.

Robinhood, which has about 18 million active users, offers fee-free crypto trades. Coinbase, which is scheduled to report earnings Tuesday evening, has some of the highest fees, at least for retail traders. Coinbase has about 56 million users.

User growth and fee compression are the key metrics analysts are keen to see from Coinbase earnings. For any cryptocurrency exchange business, revenue expectations are tempered since much of the second quarter was a bear market for crypto and cryptocurrencies tend to be long-term trades. However, analysts told CNBC they see user growth as a “critical health” metric.

For regular buying and selling, Venmo and PayPal maintain their tiered fee structure starting at 50 cents for transactions under $25. From $25 to $100, it charges 2.3%. It assesses a 2% fee for transactions between $100 and $200; 1.8% for transactions between $200 and $1,000; and 1.5% for anything above $1,000.

Venmo’s cash-back to crypto conversion program comes during a week in which digital currency is getting even more attention in Washington.

The virtual currency industry suffered a blow in Congress on Monday when the crypto compromise amendment – which would have limited a proposal to increase federal regulation of cryptocurrencieswas blocked from being added to the infrastructure bill. Still, the debate on the nuances of cryptocurrency protocols legitimized the industry and educated lawmakers – a development that many see as a long-term positive for crypto.

“Washington now sees crypto as a real product that is worthy of government attention,” Cowen’s Jaret Seiberg said in a note Tuesday. “To us, that is symbolically important as it tells us that Washington is done looking at ways to end crypto.”

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