JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. said they’re halting purchases of Bitcoin and other cryptocurrencies on their credit cards. JPMorgan, enacting the ban Saturday, doesn’t want the credit risk associated with the transactions, company spokeswoman Mary Jane Rogers said, according to Bloomberg.
Most major U.S. credit card issuers have now banned the use of their cards to buy Bitcoin or other digital currencies, in a move intended to decrease both financial and legal risk, as wild price swings continue on the biggest cryptocurrency.
Credit card providers which allow transactions with cryptocurrency exchanges could be left exposed to higher risk than usual because of the massive volatility of the assets.
“At this time, we are not processing cryptocurrency purchases using credit cards, due to the volatility and risk involved,” a Chase spokesperson told CNBC. “We will review the issue as the market evolves.”
Capital One banned credit card purchases of cryptocurrencies last month, and Discover has had a ban in effect since 2015. Per Bloomberg, the bans are designed to prevent customers from making hugely risky purchases on their credit lines or scammers from buying cryptocurrency and disappearing:
Allowing purchases of cryptocurrencies can create big headaches for lenders, which can be left on the hook if a borrower bets wrong and can’t repay. There’s also the risk that thieves will abuse cards that were purloined or based on stolen identities, turning them into crypto hoards. Banks also are required by regulators to monitor customer transactions for signs of money laundering — which isn’t as easy once dollars are converted into digital coins.
That means all of the top five credit card issuers have announced or implemented bans.
Mastercard Inc. said this week that cross-border volumes on its network -- a measure of customer spending abroad -- have risen 22 percent this year, fueled partly by clients using their cards to buy digital currencies. The firm warned that the trend already was beginning to slow as cryptocurrency prices fell.
Discover Chief Executive Officer David Nelms was dismissive of financing cryptocurrency transactions during an interview last month, noting that could change depending on customer demand. For now, “it’s crooks that are trying to get money out of China or wherever,” he said of those trying to use the currencies.
The moves are above all in the banks’ self-interest. As Fortune previously reported, the mania surrounding cryptocurrency late last year appears to have motivated many retail investors to use credit cards as leveraging tools, buying more cryptocurrency than they could afford. With Bitcoin down roughly 50% from December highs, many of those investors are likely underwater right now, and may not be able to pay off their initial Bitcoin purchases soon, if ever.
Further, as Bloomberg points out, banks may be responsible for monitoring customers’ behavior to prevent money laundering after they make a credit-backed Bitcoin purchase, a tough standard for them to comply with.
The bans — or more to the point, the news of the bans — may exacerbate ongoing declines in cryptocurrency prices. On Saturday, the price of bitcoin fell below the $8,000 mark for the first time since November, after rising almost as far as $20,000 in December, amid a broad fall in dollar values across the major cryptocurrencies.
In the longer term, however, tighter cryptocurrency investment controls, whether from regulators or lenders, seem likely to help mitigate the consequences of both hype and scams. For much of 2017, those threatened to overshadow the underlying promise of blockchain technology, which is still in the very early stages of evolution.