Why Did UK Banks Follow Suit with Ban on Cryptocurrency Credit Card Purchases?
At the time of writing, global stock markets have been undergoing a tremendous selloff as investors pull money from equities and plow it into other markets. There is growing concern that rising interest rates and rising inflation will lead to lower valuations of stocks in international bourses. This is having a dramatic effect on alternative, safe-haven investments such as Bitcoin and gold. In recent weeks, major US banks including JPMorgan, Capital One, Discover, Citigroup and others issued a blanket ban on customers trying to trade cryptocurrency such as Bitcoin with their credit cards. This has slowed the rapid rise in digital currency trading, and more banks looks set to jump on board, even across the Atlantic in the United Kingdom.
The big question is why US banks, and possibly UK banks are so interested in prohibiting customers from using their cards to buy cryptocurrency. It is known that Amazon, JPMorgan, and Berkshire Hathaway have now pooled their resources to create a new healthcare company, and it may well be that multinational conglomerates are attempting to its slow the growth of blockchain technology and its applications as it poses a real threat to the viability of banks in international money transfers. Spread betting activity across the board has shown bearish trends vis-à-vis cryptocurrency trading. Bitcoin as the dominant digital currency is now trading at $7,291.56 per unit (February 6, 2018), and the total market capitalization of the world’s premier cryptocurrency is $122.86 billion. While Bitcoin still accounts with 35.5% of overall cryptocurrency market capitalization, the market is but a shadow of what it was at its zenith in December 2017. Today, all cryptocurrency combined amounts to $345.745 billion, and there are now 1,514 digital currencies spread out across 8,569 markets.
Major Credit Card Companies Block Cryptocurrency Transactions
In January 2018, Visa terminated its relationship with a popular cryptocurrency card provider, and traders were subject to a massive setback. Fears continue to grow about how easily digital currency could be converted to fiduciary currency. The UK is no stranger to digital currency trading and is a thriving hub of activity for Bitcoin traders.
Recently, Lloyds Banking Group and other UK banks are launched initiatives to ban traders from using credit cards to buy cryptocurrency. Other companies to step up and issue the same prohibition include Virgin Money. Over the past two months, Bitcoin plunged from almost $20,000 per unit to under $8,000 per unit, prompting real concern that banks need to act in a more socially responsible manner, or in a selfish manner, to protect their clientele from purchasing what appears to be a classic bubble-style asset.
US lenders led the way, and British bank Lloyds which now owns MBNA has also followed suit. Today, cryptocurrencies cannot be purchased by Halifax, the Bank of Scotland, Lloyds, and MBNA in the United Kingdom. One major UK bank that currently allows traders to purchase digital currency such as Bitcoin is Barclays card credit card and Barclays debit card. HSBC has not taken a position on cryptocurrency trading as yet.
However, MasterCard reported that international purchases had risen 22%, driven largely by cryptocurrency trading activity. The recent slowdown in digital currency price rises has prompted a reversal in customer sentiment as a bearish mood grips the cryptocurrency trading community. UK and US banks have full authority to instruct their credit card providers – Visa, MasterCard and American Express – from processing transactions to digital currency trading platforms.
UK Clients Switch to Derivatives Trading for Cryptocurrency
This is precisely what is happening at leading UK banks. Companies that trade in cryptocurrencies are now being given a hard time by UK banks, and are finding it increasingly difficult to open accounts. The Royal Bank of Scotland is adamant in its refusal to reject credit card transactions for cryptocurrencies. Banks’ refusal to play nice with cryptocurrency is largely due to the superior technology provided by this FinTech technology.
Banks cite multiple reasons for continuing to charge high prices to clients on money transfers and the processing of transactions, while blockchain technology offers an effective solution with anonymity, rapid processing, and near-zero transaction costs. Various UK banks have even gone as far as saying that they will not approve home mortgages for clients who have generated their income through digital currency trading. Nonetheless, the spread betting industry has provided a healthy outlet for clients wanting to trade digital currency without owning these volatile underlying assets. Derivatives trading is a big business in the UK, and all banks are on board with these FCA regulated organizations.
Do you trade Bitcoin, Ethereum, Litecoin, or Ripple? What are your thoughts on UK and US banks blocking their credit card companies from processing transactions to trading platforms? Would you consider spread betting on cryptocurrency as an alternative to owning digital currency?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.