The news this week is that several banks in the US and UK have banned the use of credit cards for cryptocurrency (CC) purchases. The reasons given are unbelievable – for example, an attempt to stop 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 protected are their own.
With a credit card you can gamble in casinos, buy guns, drugs, alcohol, pornography, whatever, but some banks and credit card companies want to ban you from using their funds to buy cryptocurrency? There must be some plausible reasons, and these are NOT those reasons.
One thing banks fear is how difficult it will be to seize CC holdings if the credit card holder defaults. It would be a lot more difficult than repossessing a house or a car. The private keys of a crypto-wallet can be placed on a memory card or a piece of paper and easily taken out of the country with almost no trace of its whereabouts. Some crypto wallets may have a high value and credit card debt may never be repaid, leading to bankruptcy and significant losses for the bank. The wallet still contains the cryptocurrency and the owner can later access the private keys and use the local CC exchange in the foreign country to convert and pocket the money. A truly vile scenario.
Of course, we do not advocate such illegal behavior, but banks are aware of this possibility, and some of them want to close it. This can’t happen with debit cards, as banks never take money out of your account all at once, and only when you have enough money in it. We struggle to find any honesty in the bank’s history of limiting gambling and risk. Interestingly, Canadian banks are not jumping on this bandwagon, perhaps realizing that the stated reasons for doing so are bogus. The result of these actions is that investors and consumers now know that credit card companies and banks do have the ability to limit what you can purchase with their credit cards. This is not how they advertise their cards and it will probably surprise most users who are used to deciding for themselves what they will buy, especially from CC Exchanges and all other merchants who have merchant agreements with these banks. The stock markets haven’t done anything wrong – neither have you – but fear and greed in banking are doing 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 fiat world and the CC world. In the CC world, there is no central control body where the rules can be enforced across the board, leaving every country around the world trying to figure out what to do. China has decided to ban CCs, Singapore and Japan have adopted them, and many other countries are still scratching their heads. What they have in common is that they want to collect taxes on the profits from the CC investments. It’s not all that different from the early days of digital music, when the Internet facilitated the unfettered distribution and distribution of unlicensed music. Digital music licensing schemes were eventually developed and adopted because listeners were fine with paying a small amount for their music rather than endless piracy, and the music industry (artists, producers, record companies) were satisfied with reasonable licensing fees rather than nothing. Could there be a compromise in the future of fiat and digital currencies? As people around the world grow increasingly fed up with the outrageous bank profits and banking excesses 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 sensible compromise – this is a game changer.
Stay tuned for updates!