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Virgin Credit Cards: No To Crypto

Shortly after Lloyds Bank announced that it would be banning customers from buying crypto-currencies such as Bitcoin using their credit cards, Virgin Money is now adopting the same policy.

Why?

The volatility of cryptocurrencies such as Bitcoin have led Lloyds, and now Virgin Money to try to protect their customers from running up large debts following a sharp fall in the value of a digital currency they’ve bought. Several of the biggest issuers of credit cards in the US including Bank of America, Citigroup, JP Morgan, Capital One and Discover, have also banned customers from using their cards to buy digital currency.

Bitcoin is a perfect example of how volatile a digital currency can be. For example, at the start of 2017, one Bitcoin was worth $1,000, reached highs of around $19,000 at the end of last year, and has since plummeted to $8,291.87, its worst performance since April 2013.

The rapid rise in the value of Bitcoin last year, was also accompanied by consumers being targeted by adverts and information which acted as a temptation and incentive to invest with the promise of big returns, with many investors being inexperienced in currency investments, and unaware of the potential risks. Facebook, for example, has recently announced that it will now block any advertising that promotes crypto-currency products and services.

Bank Could Lose

Some money commentators have made the point that although the move by Lloyds and now Virgin Money could offer some protection for customers, the banks are also helping themselves because if a person buys anything on credit, such as large amounts of cryptocurrencies, it’s the bank that stands to lose if the person can’t repay the debt.

Bitcoin, for example, also operates outside of the control of banks, which may be another reason why banks may not like it.

Used By Criminals?

The police and the UK government have also taken the opportunity presented by the announcements of Lloyds and Virgin Money to make the point that digital currencies are also popular among criminals because they can use them to evade traditional money laundering checks and other regulations.

Prime Minister Theresa May, for example, has stated that action against digital currencies may be needed because of their connection to criminal activity. At the risk of sounding cynical, some money commentators have pointed out that governments tend not to like some crypotocurrencies because they are beyond their control, and they can’t (yet) make revenue from them. For example, the Chinese government has long battled with the challenges posed by Bitcoin.

What Does This Mean For Your Business?

This move by two banks, with more likely to follow, sets a new precedent. Banks don’t like unsecured risks being taken with their money, and buying cryptocurrencies on credit appears to represent a far greater risk to them than traditional gambling which you can still use a credit card for (although it will be treated as a high interest cash loan).

It’s also worth remembering that banks and governments are likely to be less happy about things that they can’t control, regulate, and raise revenue from.

Even though criminals are known to use cryptocurrencies such as Bitcoin for just these reasons (and the anonymity), it is also worth pointing out that Bitcoin actually has many attractive advantages for businesses such as the speed and ease with which transactions can take place, which is actually due to the lack of central bank and traditional currency control. Using Bitcoin also means that cross-border and global trading is made much easier and faster.

Also, even though Bitcoin looks too volatile for many to invest in at the moment, the cryptocurrency has lasted through many ups and downs (hacks and government opposition), it is still popular, and its widening popularity and potential uses for its underlying technology ‘Blockchain’ mean that Bitcoin still has a future.

From a consumer / potential individual investor’s perspective, the move by Lloyds, Virgin, and the big US credit card companies does, however, look likely to provide some responsible and sensible protection for the time-being.