Bitcoin’s Value Continues To Drop As Credit Cards Block Purchases

02.05.18 1 year ago

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Bitcoin and other cryptocurrencies are inherently volatile. That’s just part of the design. The goal of Bitcoin was to create a decentralized currency tied directly to the free market, the free market is determined by humans (rather than institutions), and humans are naturally fickle. As an experiment, it’s fascinating. But it makes cryptocurrencies vulnerable to crashes when there’s bad news (it’s inherently a more emotional market).

Today, the entire industry just got some bad news — if you want to buy any cryptocurrency, you won’t be doing it with a credit card from several major banks — and the market is reacting accordingly. The roller coaster continues!

Bloomberg reports that Chase, Bank of America, and Citigroup, which between them hold the vast majority of consumer credit, have joined Capital One and Discover in banning cryptocurrency purchases on credit cards:

Bank of America started declining credit card transactions with known crypto exchanges on Friday. The policy applies to all personal and business credit cards, according to a memo. It doesn’t affect debit cards, said company spokeswoman Betty Riess. And late Friday, Citigroup said it too will halt purchases of cryptocurrencies on its credit cards. “We will continue to review our policy as this market evolves,” company spokeswoman Jennifer Bombardier said.

This isn’t an unreasonable policy in the first place. One of the points of concern among financial experts was people borrowing to buy Bitcoin, which is foolish, and it opens the door for scammers to buy currency and then walk away from the “old system,” leaving the credit card companies to deal with the fallout. One can argue this is a fairly basic form of consumer protection, even if it’s a self-serving one.

But it also means, combined with the increasingly strict regulatory environment and the continued struggle to make cryptocurrrencies more than a financial instrument with a narrow focus, that there’s a currently lot less money going into cryptocurrencies. The effect has been stark; Bitcoin has sunk to just under $7,500 as of this writing, and Bitcoin Cash, a hard fork of Bitcoin, has dropped to less than a quarter of its peak value.

How will the market fall, and can it recover? That depends, heavily, on how much liquid cash is actually in these currencies and how willing the current group of investors is to put their hard cash, not their credit, on the line.

(via Bloomberg)

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