Cryptocurrency Crackdown Widens
The cryptocurrency crackdown continues as credit card firms have also become wary of digital currencies. Due to the onslaught of this heavy clampdown, with companies such as Facebook moving towards banning crypto-related Ads, Bitcoin and the crypto-market, in general, has taken a major hit. Notably, India has recently joined countries like China and South Korea in attempting to ban crypto-related activity. Besides becoming subject to further regulations, many credit card providers are disallowing their customers from using their credit cards from buying Bitcoin or any other cryptocurrency. A previous Core Media article has already covered the scope of these restrictions. However, this article aims to look at the disturbing crypto buying patterns noted among credit card users.
The current crackdown on crypto-related cards seems to have started with Wavecrest. The card company used to allow its users to convert their cryptocurrencies into cash via a prepaid card. Recently, Visa, one of the leading payments technology companies, ended its relationship with WaveCrest, a cryptocurrency card company. Reasons for shutting down services appear to be mainly due to the company’s failure to properly comply with regulations.
Disturbing Buying Patterns
However, a closer examination reveals that other card services have shut down, namely credit cards, because of more serious reasons. It has been reported that many of the crypto investors originally used credit cards for investing in digital currencies. This is akin to using someone else’s money to fund your own investment.
In fact, a recent survey shows that around 20% of Bitcoin buyers have used their credit cards to make the payments. The survey included around 672 bitcoin investors, with one-fifth of them revealing the use of a credit card to invest the money. Additionally, around one-fifth of these credit card users were not able to pay back their balance. Similarly, there is no surprise in the fact that an overwhelming majority believes in paying off the balances in the future, after making profits on their bitcoin investments. Of course, there’s no guarantee of this happening. Clearly, this can turn into an ugly situation for both cardholders and the companies that issue them.
Card Issuance Policies Being Reviewed
Citigroup and Bank of America, two of the leading financial institutions in the US, now continue to review their policies after blocking credit card transactions involving cryptocurrencies. Capital One Financial has already banned its credit cards from being used to buy cryptos since 2015. There can be many other legit reasons why these credit card providers are having a go at cryptocurrencies. However, one of the primary concerns is that of money laundering. Many banks also consider cryptocurrency purchase via their credit cards as an additional headache, since they find it difficult to monitor the transactions. Challenges in compliance have also been cited as other reasons for disallowing credit cards to pay for crypto.
The reports of further regulations are only going to make it difficult for the Bitcoin backers. Additionally, credit card companies might never allow their users to buy crypto with them again. Credit card providers realize that customers run the risk of getting into all sorts of issues by letting their clients use their credit cards to purchase cryptos. For instance, there are concerns that stolen cards could be abused to purchase large amounts of crypto.
Numerous Warnings Regarding Cryptocurrencies
Here is what Mateos Y Lago, a global macro investment strategist, had to say while speaking to Bloomberg about investors with investments in the Bitcoin market:
“At this stage, there are huge issues. There are safety issues, liquidity issues, and regulatory risks. This is a very new thing, and to us, at this stage, is not an investable asset class. This is not something we are advising anybody to put money in, unless they are willing to lose their entire stake.”
On the other hand, the CEO of Euronext, a cross-border European stock exchange based in Amsterdam, stated that we cannot classify Bitcoin as a cryptocurrency. Furthermore, he also said that Euronext will never be open to the bitcoin market. Here is what pointed out after this cryptocurrency crackdown:
“Bitcoin has a lot to do with bitcoin. And we believe bitcoin is not a cryptocurrency. Bitcoin is at best a crypto asset. All currencies are assets but not all assets are currencies. Clearly, bitcoin today is just like a piece of art, or just like a diamond, just like a Pokemon card.”
This cryptocurrency crackdown by credit card providers and other entities will only add to the difficulties of the investors. The availability of finance is a key aspect of trading, enabling investors to capitalize on short-term profiteering opportunities. Hopefully, as with cryptocurrency, the financial industry may come up with a new funding solution to help the investors trade in cryptos.
Still, the recent events do not reflect any major change in the market cap, typically driven by such crackdowns. Many of the European card issuers will hopefully resume their services soon in the future. However, customers using these services will need to become more careful when putting their faith in a few crypto card companies.