Just three weeks ago, we asked you a simple question: “If You’re Not Buying Bitcoin On Your Credit Card, Then WTF Are You Actually Doing To Boost Your Cool Factor?”
I mean think about it. There are a lot of things you could be doing to prove how awesome you are, up to and including eating brightly-colored laundry detergent because the packaging resembles what you imagine Starburst would look like if Starburst were even more awesome than Starburst already are, but nothing shows you’ve got big balls like using a high interest revolving line of credit to finance a rapidly depreciating asset that’s 15-25x as volatile as the S&P 500, 20x-40x as volatile as gold, and 5x-11x as volatile as fucking oil.
So yeah, if you want to show you’re a bad ass, you could eat a Tide Pod, or you could take up base jumping, hell you could even start robbing armored cars, but none of that comes even close to the kind of blatant disregard for your personal well-being as buying into the most egregious financial bubble in the history of the world using a credit card. That shows heart my friend, and as noted in the first post linked above, about 20% of the people who were buying Bitcoin at $20,000, were using the old plastic to do so.
Here’s the visual, via a LendEDU study released the day after Bitcoin peaked in December:
And here’s the Google trends chart that pretty much proves the point, because the spike in the yellow line literally coincides with both the results of the study the above chart was derived from and also peak Bitcoin:
“What could go wrong?”
Well as it turns out, this:
“But the Reddit threads said there would be Lambos!”
Alas, there are no Lambos for the poor fuckers who bought at $20,000 unless they already had a Lambo before, and as for anyone who bought at $20,000 on a credit card without the cash to pay down that balance in January, well, they’re just fucked.
For months, we’ve been arguing that cryptocurrency risk is becoming embedded into the real economy by way of lenders inadvertently lending against crypto collateral or, more directly, allowing for the purchase of Bitcoin on credit cards.
Here’s what we said in a post for DealBreaker about the distinct possibility that digital wealth generated by trading in Bitcoin and other cryptocurrencies is going to end up worming its way into the decision calculus for lenders:
Which brings me neatly to another question: how long is it going to be before people are effectively using Bitcoin as collateral? That is, if your net worth has just increased exponentially thanks to gains in cryptocurrencies, how long is it going to be before that gain starts getting factored in when it comes to securing lines of credit?
I mean obviously you’re not going to put an asterisk by your income that draws people’s attention to a handwritten footnote that says “this is subject to change depending on the price of make-believe space tokens that are so volatile I can’t even give you a rough estimate of where they might be trading without checking my phone”, so how are lenders going to know if this starts becoming an input in their models?
Now, the banks have had enough, because as Bloomberg reports this weekend, “JPMorgan, Bank of America and Citigroup said they’re halting purchases of Bitcoin and other cryptocurrencies on their credit cards.”
The rationale is simple. JPMorgan – which enacted the ban today – said the bank “doesn’t want the credit risk associated with the transactions.”
Imagine that. The banks don’t want this risk at a time when credit card losses are already piling up. Here’s a bit more from Bloomberg:
Bank of America started declining credit card transactions with known crypto exchanges on Friday. The policy applies to all personal and business credit cards. And late Friday, Citigroup said it too will halt purchases of cryptocurrencies on its credit cards.
Note how this doesn’t apply to debit cards at BofA. That makes sense because when you use a debit card, you by definition have the money to bet. I mean, you might not “have the money” in terms of whether you can afford the loss in the event whatever cryptocurrency you buy collapses, but you do “have the money” in the literal sense of the funds being available in your account at the time of the trade.
This is yet another example of how, like it or not, the powers that be (whether they’re regulators, central bankers, or the established players in the banking system) can and should be expected to rein in this market. There is no way this mania is going to be allowed to persist, and to the extent it does persist, it will have to do so outside the existing system.
And therein lies the irony which is (still) lost on the crypto crowd. There’s something entirely contradictory about basing an investment thesis on the idea that Bitcoin and other cryptocurrencies are going to replace traditional currencies, only to turn around and quote prices on those same crypto assets in fiat terms. Equally ironic is claiming that cryptocurrencies represent a threat to the banking system and then crying foul when that banking system cuts you off from using their credit cards to buy cryptocurrencies.
So to anyone who is angry at JPMorgan, BofA, and Citi for banning crypto purchases using their credit cards, I would ask you this: who’s really a “threat” to who here? Is it Bitcoin that’s threatening the banking system, or is it the banking system that’s threatening Bitcoin? If you’re inclined to think the banks are powerless in the face of this purportedly “existential” threat, well then I ask you this in light of the credit card news: “Why you mad bro?”