Cryptocurrencies under fire, bitcoin in free fall
ECB head Mario Draghi warns that digital currencies are very risky assets
9 February, 2018
The cryptocurrencies have recorded yet another hit last week as banks in the UK and the US have banned the use of credit cards to buy bitcoin and other digital currencies, fearing a plunge in their value will leave customers unable to repay their debts, news wires reported. JP Morgan Chase and Citigroup initiated the ban, which was followed last Sunday by Lloyds Banking Group, Britain's biggest lender. The move is aimed at protecting customers from running up huge debts from buying virtual currencies on credit, if their values were expected to plummet, a Lloyds spokeswoman said. The ban extends only to credit card purchases, with debit card users still able to buy cryptocurrencies.
Concerns have arisen among credit card providers because their customers have increasingly been using credit cards to fund accounts on online exchanges, which are then used to purchase the digital currencies. Last week Mastercard, the world's second biggest payments network, said customers buying cryptocurrencies with credit cards fuelled a one percentage point increase in overseas transaction volumes in the fourth quarter.
At that time bitcoin was staging a spectacular rise in value, reaching a peak of $19,000 in December on the Luxembourg-based Bitstamp exchange. But the biggest and best-known cryptocurrency has since fallen dramatically, and last week it downed under $6,000, extending losses amid worries of a global regulatory clampdown. Tightening legislation in several countries appears to have shaken confidence in cryptocurrencies, according to analysts.
Furthermore, last Monday ECB President Mario Draghi warned that digital currencies such as bitcoin should be regarded as “very risky assets”, and said the ECB is looking into the potential risks they pose for Eurozone banks. “Bitcoins are in the unregulated space and should be regarded as very risky assets. Banks should measure the risks of digital currencies in their portfolios accordingly,” he told MEPs, adding that the decision to list bitcoin derivative contracts on US exchanges could lead European banks to hold positions in the currency as well.
India is planning steps to ensure cryptocurrencies are illegal within its payments system, while at the same time appointing a regulator to oversee unregulated exchanges that trade in “crypto assets”, a finance ministry official said last Monday. A panel set by the government to look into issues relating to cryptocurrencies is expected to submit its report in the current fiscal year, ending on 31 March. The Indian government has issued repeated warnings against digital currency investments, saying these were like “Ponzi schemes” that offer unusually high returns to early investors.
But concerns about the use of bitcoin and other such currencies extend beyond the use of credit cards or possible Ponzi schemes. British PM Theresa May has recently said the UK should take a serious look at digital currencies such as bitcoin because of the way they can be used by criminals.