Currencies, Cryptos and Credit Cards – Calls from the Regulators

Last week Lloyds Banking Group joined a number of other banks in banning the purchase of cryptocurrencies with their credit cards citing concerns over consumer protection from the volatility of the cryptocurrency markets where holders have bought tokens using their facilities.

Although not all the UK’s high street banks have followed suit and purchasing using debit cards is still largely permitted by most banks – one cannot help but see through the somewhat thin veil of obfuscation in the move. Being announced as protecting consumers, it’s difficult to ignore the fact that the volume of credit card charge-backs will have risen significantly after the fall in Bitcoin’s price earlier this year.

Greed fueled bandwagoners rushing into the cryptospace to “get in on the action” but not taking a little time to figure out what they were actually buying into and instead relying on the hype in the press as Bitcoin began to spike to all-time highs in Q4 will have been hit very hard indeed. The subsequent knock-on effect as disgruntled speculators gamblers look for ways to recoup their losses or correct their misguided actions falls at the feet of the credit card companies.

Financial or Regulatory Irony?

The irony and to some extent belligerence of the move is amusing in it’s own right – and the banks know this for a fact – regulation and/or terms and conditions have existed for years preventing consumers from making significant investments using a credit card for the exact same reason. Yet despite cryptocurrencies having been around for a few years, only now do the banks feel the need to “protect consumers” from something they already know exists.

Mastercard stated these decisions are made by the banks rather than Mastercard itself – an interesting point when you consider how much the financial transaction business is worth, and the fact that blockchain technology is the future with respect to more secure, quicker and versatile payment methods. Mastercard has built its own blockchain ledger and network with a view to cementing themselves into cornering the market with a FIAT based monetary system – essentially making traditional currency movement faster and more secure – without using cryptocurrency. The fact that in some parts of the world transactions are significantly faster than others (in Asia same-day transactions are common – in Europe/North America transactions can be 3-7 days) appears to have escaped most reporters on the subject.

Government Decisions

Higher up the financial chain, both the French and German finance ministers have gone on the record with their concerns over cryptocurrencies with vague comments such as that digital currencies “could pose substantial risks for investors”. Whilst this of course is true – the exact same can be said for traditional stocks – if investors don’t take the time to learn about what they are investing into and why, they will lose money no matter what the financial instrument.

The comments follow several statements and opinions from regulators such as the SFC in Hong Kong and the European Central Bank – in particular the comments made in a lecture given by ECB member Yves Mersch which to be honest, reads very much like a desperate attempt to save everyone’s jobs in the traditional banking sector whilst justifying its own flaws and failings with ridiculous analogies and confused terminology – using folklore in an attempt to describe the market as a swamp, and terms such as “VC” (normally used to refer to Venture Capital) for “Virtual Currencies” it illustrates what appears to be a knee jerk reaction based on a very rushed learning of the subject at hand with the sole aim of scaremongering.

Whilst amusing in parts (for instance – and I quote the section on describing the unit of account when defining what money is) “The second function of money is acting as a unit of account, without which buyers and sellers would have to know how many chickens an iPhone would be worth, how many iPhones would buy a house, and so forth. Such a system quickly becomes complex: just ten products already have 45 bilateral pairs of prices. Money simplifies the comparisons of value between products. VCs fail this test – none of them are generally accepted as a unit of account.”  It is horrifying that this is what guides the world’s financial leaders with respect to regulation and the application of it.

Overall, the concerns and issues surrounding crypto regulation need to be taken seriously of course – but they should be addressed from a proactive angle with action and clarity, rather than attempting to ridicule and vainly justify the past actions and failings of the ECB itself and cash printing governments alike. 

Created: Monday, February 12, 2018

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