Is Cryptocurrency a Risk for Banks?

Bitcoin and other cryptocurrencies are considered a highly volatile asset. Though there is the potential to triple or even double your money in a short period of time, there is also the risk of losing everything in an instant. To give you the right perspective, in mid-December, Bitcoin almost hit $20,000 only to lose almost half of its value now. In addition to that, there were times in the last few weeks that Bitcoin dipped below $6,000.

Stopping Credit Card Use in Buying Cryptocurrencies?

For this reason, US banks stopped allowing the use of credit card in purchasing Bitcoin as well as other cryptocurrencies. The latest bank that has followed US banks is Toronto-Dominion Bank. It announced that they are going to halt the use of credit cards on cryptocurrencies while it conducts a review of what they called as an “evolving market”.

According to the bank’s spokesperson, “At TD, we regularly evaluate our policies and security measures, in order to serve and protect our customers, as well as the bank”.

Royal Bank, on Friday, mentioned that it allows the use of credit and debit cards only for limited circumstances when it comes to buying cryptocurrencies. However, the bank has cautioned cryptocurrency investors saying that it “could expose them to substantially higher debt level than they are able to repay”.

An RBC spokesperson mentioned that “We do recognize that regulatory, risk and other external environmental factors relating to cryptocurrencies continues to evolve”.

A Business Risk?

For Bank of America, it goes further saying that cryptocurrencies are a risk to its business. According to the second-largest US bank, cryptocurrencies could hinder the ability of the bank to comply with anti-money laundering regulations. This means that the bank will have no other choice but to spend more money in order to keep up with the changing times.

In its report, “cryptocurrency” was mentioned three times. And to top it off, it was mentioned all in the risk factor section during its annual filing with the Securities and Exchange Commission.

And it isn’t just because of the potential use of cryptocurrencies for money laundering that Bank of America considered digital currencies as a threat. In fact, it was acknowledged that blockchain technology could serve as a competitive risk to banks.

For one, the blockchain technology proved that there is a possibility that people and organizations can do transactions without the use of a third-party. However, Bank of America expressed caution how clients could potentially prefer the use of cryptocurrencies.

“Clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies”.

They also added that “The widespread adoption of new technologies, including internet services, cryptocurrencies, and payment systems, could require substantial expenditures to modify or adapt our existing products and services”.

Bank of America is one of the US-based banks that recently banned the use of credit cards when it comes to purchasing cryptocurrencies.

It is true that cryptocurrencies changed the way people conduct business. And mainly because of its volatility, it is also important to take precaution whenever you invest your money in this market. For banks, it is a risk that they decide not to take.