The news this week is that several banks in the US and the UK have banned the use of credit cards to buy cryptocurrencies (CCs). These reasons are impossible to believe – such as trying to reduce money laundering, gambling and protecting the retail investor from excessive risk. Interestingly, banks will allow debit card purchases, making it clear that the only hedged risks are their own.
You can use a credit card to gamble at 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 cryptocurrencies? There must be some compelling reasons, and these are NOT the reasons given.
Banks are afraid of one thing about how difficult it would be to take away stakes in CC when a credit card holder fails to pay. It would be much harder than re-owning a house or car. The private keys of a crypto wallet can be placed on a memory card or piece of paper and easily removed from the ground, with little or no trace of where it is located. Some crypto wallets may have a high value, and credit card debt may never be repaid, leading to bankruptcy and a significant loss to the bank. The wallet still contains cryptocurrency, and the owner can later access private keys and use the local CC exchange in a foreign country to convert and add money to his pocket. A really nefarious scenario.
We certainly do not advocate this type of illegal behavior, but banks are aware of the possibilities and some of them want to rule it out. This can’t happen with debit cards because banks never have their own pocket – money comes right out of your account and only if there is enough money to start with. We try to find any honesty in the bank’s story about reducing gambling and taking risks. Interestingly, Canadian banks do not jump in this way, perhaps realizing that the reasons given are false. The consequence of these actions is that investors and consumers are now aware that banks and banks with credit cards really have the ability to limit what you can buy with their credit card. This is not the way they advertise their cards and is probably a surprise to most users who are quite accustomed to deciding for themselves what to buy, especially from CC exchanges and all other merchants who have entered into a trading agreement with these banks. The stock markets have done nothing wrong – neither have you – but fear and greed in the banking industry cause strange things. This further illustrates the extent to which the banking industry feels threatened by cryptocurrencies.
At the moment, there is little cooperation, trust or understanding between the world of fiat money and the CC world. The CC world does not have a central control body in which regulations could be enforced in all places, leaving every country around the world in an attempt to figure out what needs to be done. China has decided to ban CCs, they have been accepted by Singapore and Japan, and many other countries are still scratching their heads. What they have in common is that they want to charge income tax on investing in CC. This is not too much unlike the early days of digital music, with the internet facilitating the unhindered distribution and distribution of unlicensed music. Digital music licensing schemes were eventually developed and accepted, as listeners could pay a little for their music rather than endless piracy, and the music industry (artists, producers, record labels) was fine with reasonable license fees, and not with anything. Can there be a compromise in the future of fiat and digital currencies? As people around the world become increasingly fed up with unprecedented bank profits and bank over-entry into their lives, there is hope that consumers will be treated with respect rather than being forever burdened with high costs and unjustified restrictions.
Cryptocurrencies and Blockchain technology are increasing pressure around the world to reach a reasonable compromise – – this is a change of game.