Recent news over the last week has had many people concerned about the future of cryptocurrencies in the financial system, but is it really all that big of a deal? One of the primary concerns for people to start losing their cool was over reports of many credit card companies banning the use of their cards for cryptocurrency purchases. This news included massive and well-known financial institutions like JP Morgan Chase, Barclays, Capital One, Bank of America, and Lloyds, just to name a few.
Press releases from multiple companies confirmed that they would no longer be allowing customers to use credit cards on popular platforms like Gemini and Coinbase for the purchase of Bitcoin and other cryptocurrencies. This news may seem like a terrible announcement at first glance, but should it cause concern? The answer is no, by the way, just in case you were wondering; there’s no evil boogeyman hiding in the financial industry who doesn’t want to see people getting rich off cryptocurrencies and so they’re forced to start shutting down access to the markets. That’s likely not what’s going on here at all.
Perhaps a better response, before getting absolutely outraged over the decisions of these large companies, is to first take a look at the issue through the lens of the creditors. Everyone tends to get so outraged and upset before even really having an opportunity to understand what the problem is. I should point out that I am personally always in favor of criticizing crooked businesses, especially those that hold a tremendous amount of power in a particular industry like finance, and exposing practices that discriminate against a certain class in their user base.
Nevertheless, this is one of those cases that does not warrant such a hateful response from the crypto community. The most important thing to remember amidst all the outraged customers is important difference between credit cards and debit cards. While debit cards are simply an easy, relatively fast, and relatively secure way to access funds already in your checking account, credit cards allow the holder to spend money “on credit,” meaning it’s money they do not have.
Protecting the ability for users to purchase cryptocurrencies with debit cards and automatic clearing house (ACH) payments directly from their personal bank account makes sense. Customers of banks should be able to use their own money however they see fit.
That seems like a pretty fair deal, right? If it’s your money, you shouldn’t have financial institutions telling you where you can and can’t spend it, especially considering how much money the bank is making off of you allowing them to borrow your money when you deposit it into your account. I’m all on board with that sentiment: banks should have no ability to tell customers where they can or can not spend money. Say if I were to bank with Bank of America (BoA) and one day BoA decided to purchase Dunkin Donuts. It wouldn’t be right if, as a customer of BoA, I tried to get my morning coffee at a nearby Starbucks only to find out at the counter that BoA has cancelled all Starbucks purchases done with their cards and only supports Dunkin Donuts purchases. In that case, something clearly seems very wrong. But is it analogous?
The short answer is simply no; the two cases are nothing alike. I think the most commonly overlooked aspect of the question revolves around the nature of credit cards and the fact that the money behind the card, i.e. the person/institution actually paying for the purchase at time of sale, is not the cardholder, but rather the bank. If banks were truly looking to limit entrance into the cryptocurrency markets, we would be seeing holds on debit purchases, wire transfers, and ACH transfers as well. On top of that, a card issuer could also publicly state a lack of interest in being involved with an exchange entirely because of security concerns. There are many choices these financial institutions have for cutting ties with crypto, this most recent news is about them, not you.
Credit card holders are not spending their own money when swiping a card or entering in their information online. Instead, users are using borrowed money to fund an incredibly risky trading account. It should be noted, for those looking to draw comparisons to may other areas of the economy, that credit cards may not be used to fund traditional trading accounts in most cases either (in the US). Likewise, it’s difficult—if not outright impossible—for card holders to purchase chips at a casino on credit cards as well.
The fact of the matter is that cardholders are making investments and trades with money that doesn’t belong to them. Traders are making bets that they’re not on the line for and in certain cases, they’re essentially gambling with someone else’s money instead of their own, then being outraged at the thought of being asked to only risk your own money.
Banks and other financial institutions are not as naive about the crypto markets as many seem to think. These companies know the risks, they know the volatility of the markets, and they know that there is no guarantee that investors will see returns. Banks are simply looking to limit the amount of risk they have to accept with their customer base, and in order to do that, they’ll gladly change the rules for what you can buy with their money; feel free to spend your money any way you please, just not theirs.