#AceFinanceReport – Feb.10: It’s happened in the US and now it’s happening in the UK. Lloyds Banking Group, which runs Halifax, Bank of Scotland, MBNA and, of course, Lloyds, has banned its customers from buying bitcoin with their credit cards. “We do not accept credit card transactions involving the purchase of cryptocurrencies,” a Lloyds Banking Group spokesperson told the Guardian. It’s thought to be the first UK bank — or rather, banking chain — to block its members from investing in the cryptocurrency. The worry, presumably, is that people will borrow cash and then be saddled with large amounts of debt they cannot pay back due to Bitcoin’s fluctuating value #AceFinanceDesk reports
Bitcoin had a stellar trajectory in 2017, rising from roughly $800 to $19,783 in late December. As the value grew, so did the attention of traditional investors and tech-savvy citizens who wanted to make a quick buck. The following month, however, Bitcoin’s value cratered. The reasons are unclear, but it was a harsh reminder of the volatility of cryptocurrencies. Bitcoin now sits at just under $8,000 and understandably, banks are worried about its customers getting caught up in the ‘digital gold’ craze. We’ve asked HSBC, Barclays, Santander and smaller banks such as First Direct for their current position on credit card-funded Bitcoin transactions:
Financial institutions in the US made a similar move last week. Credit cards issued by Bank of America, JP Morgan Chase and Citigroup are now restricted from Bitcoin purchases due to the associated risks. At the same time, politicians around the world are scrambling to figure out what, if any regulation is required to protect their citizens. UK Prime Minister Theresa May said at the World Economic Forum in Davos: “In areas like cryptocurrencies, like Bitcoin, we should be looking at these very seriously, precisely because of the way they can be used, particularly by criminals.” South Korea, meanwhile, has tried to control the market by introducing rules that limit cryptocurrency trading to real-name bank accounts. China is to block all websites related to cryptocurrency trading and initial coin offerings (ICOs) – including foreign platforms – in a bid to finally quash the market completely.
“To prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs,” said an article published on Sunday night by Financial News, a publication affiliated to the People’s Bank of China (PBOC).
The article acknowledged that recent attempts to stamp out digital currencies by shutting down domestic exchanges had failed to completely eradicate trading.
“ICOs and virtual currency trading did not completely withdraw from China following the official ban … after the closure of the domestic virtual currency exchanges, many people turned to overseas platforms to continue participating in virtual currency transactions.
“Overseas transactions and regulatory evasion have resumed … risks are still there, fuelled by illegal issuance, and even fraud and pyramid selling,” the article said.
China’s official Xinhua news agency quoted the PBOC on Monday afternoon as saying it would tighten regulations on domestic investors’ participation in overseas transactions of ICOs and virtual currencies, as risks are still high in the sector.
Beijing’s tougher stance – which effectively bans all forms of activity related to digital currencies – aims to put the breaks on the ICO and virtual-currency trading mania that has been sweeping China. The frenzy among retail investors led to huge price volatility and several reported incidents of fraud, causing a headache for regulators increasingly worried about social unrest.
In one incident on Saturday, reported by mainland Chinese media TMT Post, angry investors had forcibly taken Jiang Jie, founder of an ICO project called ARTS, to the Beijing municipal financial bureau, alleging fraud after the value of a virtual coin issued by ARTS tumbled to 0.13 yuan in two weeks from 0.66 yuan after its ICO and listing on an exchange in late January.
Following reports of the latest crackdown, advertisements for cryptocurrencies have stopped appearing on Baidu, China’s biggest search engine, and social media platform Weibo.
“It is common for people to use VPNs [virtual private networks] to trade cryptocurrencies, as many exchange platforms relocated to Japan or Singapore,” said Donald Zhao, an individual bitcoin trader who relocated to Tokyo from Beijing late last year, following the ban.
“I think the new move literally means it would be even harder to circumvent the ban in China … people promoting related business programmes may be arrested,” Zhao said.
The tighter regulation from the PBOC will “definitely weigh on the cryptocurrency universe,” said Wayne Cao, who runs a company that recently offered 10 billion tokens in an ICO.
“Most of the Chinese ICO projects are invested in by Chinese investors. So if they are blocked, the whole cryptocurrency market will be dragged down.”
Until now, offerings of new tokens have usually been pegged to more established cryptocurrencies like bitcoin, and retail investors could buy into them via ICOs, as long as they had digital wallets ready. Trading of the coins has taken place on offshore exchange websites, with wider participation once ICOs are complete.
The bitcoin bubble seemed close to bursting after it dropped to below US$8,000 for the first time since November, then regained its standing, leaving some experts unnerved.
China banned both ICOs and cryptocurrency exchanges in September, but trading by individuals has remained a murky area with many businessmen relocating to Hong Kong or Japan while still raising funds from mainland investors.
Two weeks ago, the PBOC ordered financial institutions to stop providing funding to any activity related to cryptocurrencies, further tightening the noose.
“It’s positive news for Japan and Singapore, because demand for participating in trading is not diminishing and traders have got to go somewhere,” said Ace Yang, executive director of Cathay Capital, a private equity firm based in Beijing.
One commentator said authorities would always be concerned about problems that could arise from a lack of supervision over blockchain technologies.
“Regulators will for sure step in, if any kinds of financial innovations currently implemented, including blockchain finance, digital finance, smart finance and big data finance, infringe upon the interests of consumers and affect the stability of the entire financial market,” said Li Lihui, a former president of the Bank of China who now works as team leader of the blockchain research department under the semi-official National Internet Finance Association of China.