The news this week is that several banks in the US and UK have banned the use of credit cards to purchase cryptocurrencies (CC). The reasons given are unbelievable – as an attempt to curb money laundering, gambling and to protect the retail investor from excessive risk. Interestingly, banks will allow debit card purchases, making it clear that the only risks that are protected are their own.
With a credit card you can bet in a casino, buy guns, drugs, alcohol, pornography, anything and everything you want, but some banks and credit card companies want to ban you from using their facilities to buy crypto currencies? There must be some plausible reasons and they are NOT the reasons stated.
One thing banks fear is how difficult it would be to seize the CC’s holdings when the credit card holder defaults on payment. It would be much more difficult than repossessing a house or car. The private keys of a crypto wallet can be placed on memory or a piece of paper and easily taken out of the country, with little or no trace of its whereabouts. There may be a high value in some crypto wallets and the credit card debt may never be paid off, leading to bankruptcy and a significant loss to the bank. The wallet still contains the cryptocurrency and the owner can later access the private keys and use a local CC Exchange in a foreign country to convert and withdraw the money. A truly ugly scenario.
We certainly don’t support this kind of illegal behavior, but the banks are aware of the possibility and some of them want to shut it down. This can’t happen with debit cards because the banks are never out of your pocket – the money comes out of your account instantly and only if there’s enough money there to begin with. We struggle to find any honesty in the bank’s history of curbing gambling and risk-taking. Interestingly, Canadian banks are not jumping on this bandwagon, perhaps realizing that the reasons given for doing so are bogus. The result of these actions is that investors and consumers are now aware that credit card companies and banks do have the ability to limit what you can purchase with their credit card. This is not how they advertise their cards and is probably a surprise to most consumers who are used to deciding for themselves what to buy, especially from CC Exchanges and any other merchants who have established commercial agreements with these banks. The stock markets have done nothing wrong – and neither have you – but fear and greed in the banking industry is causing strange things to happen. This further illustrates the extent to which the banking industry feels threatened by cryptocurrencies.
At this point there is little cooperation, trust or understanding between the fiat world and the CC world. The CC world has no central control body where regulations can be enforced everywhere, and that leaves every country in the world trying to figure out what to do. China has decided to ban CCs, Singapore and Japan are accepting them, and many other countries are still scratching their heads. What they have in common is that they want to collect taxes on profits from CC investments. This is not very different from the early days of digital music, with the Internet facilitating the unlimited distribution and distribution of unlicensed music. Digital music licensing schemes were eventually developed and accepted because listeners were OK with paying a little for their music instead of endless piracy, and the music industry (artists, producers, record companies) was OK with reasonable licensing fees instead of nothing . Could there be a compromise in the future of fiat and digital currencies? As people around the world are fed up with unheard of bank profits and bank overreach in their lives, there is hope that consumers will be treated with respect and not forever burdened with high costs and unjustified restrictions.
Cryptocurrencies and Blockchain technology are increasing the pressure around the world to reach a reasonable compromise – this is a game changer.
Stay on the line!