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The news this week is that several banks in the US and UK have banned the use of credit cards to purchase cryptocurrency (CC’s). It is impossible to believe the stated reasons – such as trying to reduce money laundering and gambling and to protect the retail investor from excessive risk. Interestingly, banks will allow the purchase of debit cards, making it clear that the only risks they are protected are their own.
With a credit card, you can gamble in a casino, buy weapons, drugs, alcohol, pornography, everything and anything you want, but some banks and credit card companies want to stop you from using their facilities to buy cryptocurrency? There must be some reasonable reasons, which are not the reasons mentioned.
One thing banks are afraid of is how difficult it will be to confiscate CC holdings when a credit card holder defaults. It will be much more difficult than repossessing a house or a car. The private keys to 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, resulting in 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. Really horrible scenario.
We certainly don’t advocate this kind of illegal behavior, but banks are aware of the potential and some want to shut them down. This cannot happen with debit cards because banks are not at all out of pocket – money comes out of your account instantly, and only if there is enough in your funds to begin with. We struggle to find any sincerity in the bank’s story about reducing gambling and risk. It is interesting that Canadian banks are not jumping on this bandwagon, perhaps realizing that their stated reasons for doing so are bogus. The implication of these actions is that investors and consumers now realize that credit card companies and banks do indeed have the power to restrict what you can buy with their credit cards. This is not how they advertise their cards, and it probably comes as a surprise to most users, who are used to deciding for themselves what they are going to buy, especially from CC Exchanges and all the other merchants that have commercial agreements with these banks. The stock exchanges did nothing wrong – and neither do you – but fear and greed in the banking industry are causing 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 fiat money world and the CC world. 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 at a loss. What they have in common is that they want to collect taxes on CC investment profits. This is not much different from the early days of digital music, where the Internet facilitated the proliferation and unrestricted distribution of unlicensed music. Digital music licensing schemes were eventually developed and accepted, where listeners were okay with paying a little money for their music, rather than endless piracy, and the music industry (artists, producers, record labels) was okay with reasonable licensing fees instead of nothing. Can there be a middle ground in the future of fiat and digital currencies? As people around the world grow weary of the outrageous bank profits and banking excesses of their lives, there is hope that consumers will be seen with respect and not forever put up with excessive costs and unjustified restrictions.
Crypto Currencies and Blockchain Technology are increasing the pressure around the world for a reasonable compromise – this is a game changer.
Stay tuned!
