The news this week is that several banks in the US and UK have banned the use of credit cards to purchase cryptocurrencies (CC’s). It is impossible to believe the stated reasons – such as trying to curb money laundering and gambling and protecting the retail investor from excessive risk. Interestingly, banks will allow debit card purchases, making it clear that the only risks being protected are their own.
With a credit card you can gamble in the casino and buy guns, drugs, alcohol, porn, everything and anything you want, but some banks and credit card companies want to prevent you from using their facilities to buy cryptocurrency? There must be some reasonable reasons, which are not the reasons mentioned.
The one thing banks fear is how hard it will be to confiscate CC holdings when a credit card holder defaults. It will be much more difficult than owning a house or a car. The private keys of a crypto wallet can be placed on a memory stick or piece of paper and easily removed from the country, with little or no trace of their whereabouts. There can be high value in some cryptocurrency wallets, and credit card debts may never be paid, leading to bankruptcy and a huge loss for 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 transfer and pocket the money. A really gruesome scenario.
We certainly don’t advocate this kind of illegal behavior, but banks are aware of the possibility and some want to shut them down. This can’t happen with debit cards because the banks are not at all out of pocket – money comes out of your account immediately, and only if there is enough of your money to begin with. We struggle to find any truth to the bank’s story about limiting gambling and risking. It’s interesting that Canadian banks don’t jump on this bandwagon, and you probably realize that the stated reasons for doing so are bogus. The implications of these measures is that investors and consumers now realize that credit card companies and banks already have the ability to limit what you can buy with their credit cards. This is not how they advertise their cards, and it will probably come as a surprise to most users, who are used to deciding for themselves what to buy, especially from CC Exchanges and all other merchants that have commercial agreements with these banks. The exchanges did nothing wrong – and neither did you – but fear and greed in the banking industry cause strange things to happen. This also shows the degree to which the banking industry feels threatened by cryptocurrencies.
At this point, there is little cooperation, trust or understanding between the world of fiat money and the world of CC. The CC world does not have a central control body where regulations can be implemented across the board, and this leaves every country around the world trying to figure out what to do. China has decided to ban CC, Singapore and Japan are embracing them, and many other countries are still confused. The common denominator between them is that they want to collect taxes on the profits of a CC investment. This is not much different from the early days of digital music, where the Internet facilitated the unrestricted diffusion and distribution of unlicensed music. Digital music licensing schemes were eventually developed and accepted, where listeners were OK with paying a little money for their music, rather than endless piracy, and the music industry (artists, producers, record companies) were OK with reasonable licensing fees rather than no thing. Could there be a compromise in the future of fiat currencies and digital currencies? As people all over the world are tired of outrageous bank profits and banking excesses in their lives, there is hope that consumers will be seen with respect and will not forever have to bear the exorbitant costs and undue restrictions.
Crypto Currencies and Blockchain technology is increasing pressure around the world for a reasonable compromise — this is a game changer.