Wells Fargo has become the latest financial giant to ban credit card purchases of cryptocurrency.
Wells Fargo, the second-largest bank in the world by market capitalization, has followed in the footsteps of JP Morgan, Bank of America, Citibank, and a growing list of leading financial institutions — all of whom have prevented credit purchases of cryptocurrency from online exchanges.
Why the ban?
While protecting consumers may be the explanation most easy to digest, the majority of banks cite a desire to avoid the legal and financial risks associated with purchases of cryptocurrency on credit.
As retail investors reach beyond their means to leverage increasingly large lines of credit, banks may anticipate investors defaulting on payments in the event of investment losses. With many cryptocurrencies halving in value during 2018’s bearish market cycle, such fears may be substantiated.
In a nod to this industry-wide trend, a Wells Fargo representative noted:
“We’re doing this in order to be consistent across the Wells Fargo enterprise due to the multiple risks associated with this volatile investment. This decision is in line with the overall industry.”
Anti-crypto or anti-credit?
While Wells Fargo may be protecting itself with the ban, customers of the San Francisco-based bank will still be able to purchase cryptocurrency using debit cards. Upon reading the bank’s memo, one customer tweeted:
This is actually good news, Wells Fargo has made it clear they have no problem with CryptoCurrency activity, they just don’t want ‘credit’ being used to purchase, meaning your debit card or checking account is good to go. #Litecoin #Bitcoin pic.twitter.com/S9Ia4WJ2NT
— Jon Moore (@jonnylitecoin) June 11, 2018
As cryptocurrency market capitalization dips below $300 billion, such a ban may lead to a brief cull in fervor for the emerging asset class.
Yet, numbers would suggest that any anti-credit sentiment by banks may be unfounded. In a LendEDU poll in December 2018, just 18.15% of users surveyed used a credit card to purchase cryptocurrency — of whom only 22% were unable to repay their debt.
Cover Photo by Fabian Irsara on Unsplash