Why Are Banks Blocking Their Cards from Being Used at Cryptocurrency Platforms?

A rising trend has gripped financial markets: Big US banks, UK banks and European banks are blocking the purchase of cryptocurrency through leading companies like Coinbase, Bitstamp, Bitgrail, and scores of others. Banks are working with credit card companies like Visa and MasterCard to effectively prevent their clients from dabbling in cryptocurrency trading. Among the many banks that have taken a firm stand against cryptocurrency trading are Citigroup Inc., JPMorgan Chase & Company, and major US bank, Bank of America Corporation. These changes were ushered in this February, amid growing concern of the volatility related to cryptocurrency trading. Recall that Bitcoin was trading at $19,000 + in mid-December 2017 and plunged spectacularly to under $8,000 in January 2018. The major banks have initiated these changes to business and personal clients – regardless. Banks are growing scared that the price bubble with cryptocurrency could result in too many traders losing the shirts off their backs and not being able to repay the banks and credit card companies. Hence, Visa and MasterCard have now put a stop to this. The banks are worried that money laundering is taking place, and they are working hard with AML measures to prevent criminals from laundering funds. With so many countries threatening to regulate, ban or limit trading in digital currencies, banks do not want to continue propping up this financial instrument amid fears that governments or central banks around the world could cause the value to plunge overnight. Since many customers are leveraging their credit cards to buy cryptocurrency, the downside is the customers’ inability to repay the card when the digital currency loses value.

Is there a more sinister reason for banks declining crypto purchases?

It comes as no surprise that banks are growing increasingly concerned about the rising popularity and widespread adoption of cryptocurrency trading. For many folks, it may seem like technology gobbledygook, but a clear Cryptocurrency definition makes it easy to understand what you are dealing with. Cryptocurrency confers many benefits upon users, notably anonymity, near-zero transactions costs, immediate transfers, no intermediaries etc. These attributes are attractive to clients who want to transfer money abroad, or make purchases without having to worry about Forex transactions fees, the spread, and excessive bank profits. Naturally, banks are terribly concerned about how digital currency trading is undercutting their profitability around the world. Recall that by the end of 2017, the market capitalization of 1500+ digital currencies was above $800 billion. Today, it’s a smidgen above $500 billion, but still significant enough to warrant concern from banks. Of course, banks prefer the corporate social responsibility approach when describing the reasons for preventing transactions in cryptocurrency. They claim to be acting in the best interests of consumers by preventing trading in an unregulated, bubble-like financial instrument. Unfortunately, the blockchain technology that cryptocurrency is founded upon poses the biggest threat to banks and financial institutions. By mid-February 2018, cryptocurrency prices had started to rise. Bitcoin broke above the $10,000 level per unit, Ethereum was trading around $968, and Ripple rapidly advanced towards $1.19 per unit. Other notable rises included Bitcoin Cash at $1,536, and Litecoin at $228 per unit. Decentralized blockchain technology clearly has significant clout in the smart contracts arena, banking arena, and money transfer arena. Banks risk being undercut if they continue allowing trading in this asset class.