If you’ve been using your credit card to buy cryptocurrency, you’re going to have to rethink that plan as soon as possible. Starting on Friday, some of the world’s largest banks announced that customers are now prohibited from buying cryptocurrencies with credit cards. Their reason? To start, cryptocurrency is extremely volatile so there’s that. But also, people could load up a credit card with cryptocurrency and then not be able to reimburse the bank that money. Leaving the bank holding the bag. So this move certainly makes sense. On Friday, J.P. Morgan Chase, Bank of America and Citigroup all announced the new restrictions as the price of Bitcoin fell below the $8,000 mark. Which is less than half of the high it hit in mid-December.
A Chase spokesperson had the following to say:
“At this time, we are not processing cryptocurrency purchases using credit cards, due to the volatility and risk involved. We will review the issue as the market evolves.”
Will they though? I mean, it’s bad enough that people are able to buy on credit for everyday items. But having the ability to invest using credit cards is kind of scary. Sure, you can take money out of your card, and use the cash to invest, but that isn’t a common practice. Nor is it smart. It doesn’t make sense for the bank to allow it in the first place. In fact, Discover has had this ban in effect since 2015. Again, you can’t blame them. Borrowing money in order to invest isn’t the way to get yourself out of debt, or increase your net worth.
The other concern is that people can steal credit card information, and then make large cryptocurrency purchases. Of course, the bank wouldn’t be able to get that money back. According to Bloomberg:
Allowing purchases of cryptocurrencies can create big headaches for lenders, which can be left on the hook if a borrower bets wrong and can’t repay. There’s also the risk that thieves will abuse cards that were purloined or based on stolen identities, turning them into crypto hoards. Banks also are required by regulators to monitor customer transactions for signs of money laundering — which isn’t as easy once dollars are converted into digital coins.
The ban doesn’t affect debit cards though. Which makes sense, because that’s cash. All of this is a good move by the banks, because Bitcoin’s value is decreasing. With no signs of making a come back. Many had suggested that Bitcoin wasn’t likely to dip back down below $10,000 but that’s the reality we are in right now.
If you’ve read anything I’ve written, I am extremely skeptical about cryptocurrency investment. But I have been known to be wrong. Banks taking this kind of stance is better than banning the trading of the currency altogether. Like we saw in South Korea. Well, they said they were going to ban it, and then they decided they would just regulate it better. India and China are in the same boat as well. Even the IRS has begun collecting customer records from major exchanges in an attempt to hunt down tax evaders. I think regulation is the way to go with cryptocurrency, so how this will play out is going to be interesting, for sure.