Last Friday news broke that multiple major banks were beginning to ban the use of credit cards to purchase cryptocurrencies. JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Citigroup (NYSE:C) got things rolling. London’s Lloyds Banking Group (NYSE:LYG) joined the party yesterday and Virgin Money hopped onboard today. That long list will likely continue to grow in the coming days.
If the bad news ended there, investors and analysts would rightfully be worried, but it doesn’t. China and India are both revving up regulations while retailers are showing signs of cooling on the idea of crypto collaborations. All of that adds up to a long heavy head shake if you’re contemplating the string of bad news that has befallen Bitcoin and its crypto brethren.
TipRanks Crypto Center shows Bitcoin hovering around $7,000 at 10AM EST
Why Are Banks Banning Credit Card Crypto Buys?
Bank and government spokespeople seem to be united in a coordinated chorus of concern for cryptocurrency investors. A parade of official statements from financial institutions and government regulators have all cited the explosive volatility of the cryptocurrency market as the motive behind the multi-bank ban. Lloyds said they made the move to “protect customers.”
So how volatile is it really? If you used your credit card on December 16 to buy your sweetheart a single shiny Bitcoin for Christmas, you would have paid close to $20,000. By the time they opened that gift nine days later, on Christmas morning, it’s value would have dropped to less than $14,000. Now, a little more than a month later, and your generous $20,000 gift is worth less than $7,000. That’s a 65% loss within 8 weeks, and with that magnitude of risk exposure, it’s no wonder that the banks are putting the brakes on crypto-buying with their credit cards.
Is the Ban Unprecedented?
Up until now, there are only a couple things most credit card companies don’t allow you to pay for with their plastic: 1) anything illegal 2) paying off any debt, like a mortgage. It’s not uncommon for stockbrokers to turn away clients who want to pay for purchases with credit cards, but that decision falls on the shoulders of stockbrokers and not the banks. People can and do use their credit card to gamble although it’s certainly not wise when considering the high interest rates involved when borrowing money.
Do Banks and Governments Want To Crush Cryptocurrency?
Some believe that banks see the emerging cryptocurrency market as intolerable competition and a real and present threat to their financial future. Blockchain’s creator/s ‘Satoshi Nakamoto’ had this to say about banks back in 2009, “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
As a result, Nakamoto’s system “is based on crypto proof rather than trust”. Cryptocurrency allows people to trade with each other, cutting out the bank as the middleman. That presents the potential of rendering the institutions extinct.
Similarly, crypto supporters often argue that global governments are terrified that a successful cryptocurrency market could usher in an age of tumbling tax revenue as millions opt to join the anonymous online digital cash craze. Indeed, Panos Mourdoukoutas, a Professor of Economics at Long Island University says in Forbes: “Big governments cannot tolerate Bitcoin, the digital currency that threatens to break their monopoly on printing money, and to manipulate the economy to accommodate the interests of powerful elites.”
That trend would make it increasingly more complicated for the tax man to keep the government’s coffers full. It’s no wonder that some are suggesting that the latest moves by banks and governments appear coordinated and amount to a conspiracy to crush the fledgling cryptocurrency market. Regulations are important tools to protect the public from crypto-crooks, outright bans may be a step too far. Technology and innovation always seem to find a way around, over, or through obstacles to growth.