Wells Fargo has announced that customers will no longer be able to purchase Bitcoin and cryptocurrency using its credit cards. A spokesperson for Wells Fargo said this decision is in line with the rest of the industry, and is due to multiple risks associated with cryptocurrency.
Wells Fargo is the third largest bank in the United States with nearly USD 2 trillion of assets, not far behind the total assets of JPMorgan Chase and Bank of America, who have already banned cryptocurrency purchases with credit cards. Citigroup, Discover, Capital One, and UK bank Lloyds also issued the same ban earlier in 2018.
The risks associated with cryptocurrency purchases via credit card weren’t detailed in the announcement of the ban, but there are a couple of well-known pitfalls that makes purchasing cryptocurrency with credit cards risky to banks and their clients.
Bitcoin and cryptocurrency transactions are immutable and irreversible, so if credit card fraud were to occur the bank would be at a complete loss. Unfortunately, cryptocurrency would be a preferred way to drain a stolen credit card, since once the money is converted to cryptocurrency it can be laundered and converted back to cash, making it difficult to trace.
Market volatility is another thing that makes purchasing cryptocurrency with credit cards risky. The price of Bitcoin has declined from a peak near USD 20,000 to less than USD 7,000 today, in only about half a year.
If someone were to buy Bitcoin with a credit card and then lose a lot of their investment they might attempt a chargeback. If the chargeback wasn’t successful, the credit card user may choose not to pay back regardless, feeling that the bank didn’t properly protect them.
Indeed the bans on purchasing Bitcoin and cryptocurrency with credit cards coincide with the market going down throughout 2018, so credit card users deciding not to pay their bill after losing money in the market could be a primary factor leading to these bans.
It is perhaps beneficial to the cryptocurrency world that credit cards are being taken out of the picture since it could reduce fraud associated with cryptocurrency, making the cryptocurrency ecosystem a healthier place to conduct business.
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