In early 2018, the cryptocurrency boom faced a powerful pushback from traditional banking giants. Bank of America, the second-largest U.S. bank, officially stopped accepting credit card transactions for cryptocurrency purchases on February 2, 2018. It joined JPMorgan Chase and Citigroup, which had announced similar bans around the same time. The move was justified as a risk-mitigation measure to protect consumers who might take on excessive debt to buy volatile assets like bitcoin.
Why Banks Are Turning Against Crypto Credit Purchases
The decision by Bank of America and Citigroup is rooted in conservative risk management. During the December 2017 price rally, a growing number of individuals used credit cards to buy bitcoin, leveraging borrowed money in a highly speculative market. As prices subsequently fell, fears that customers might default on their debts prompted banks to act. Visa and Mastercard joined the crackdown by reclassifying all cryptocurrency purchases on credit cards as “cash advances,” triggering an additional 5% fee. For a $5,000 bitcoin purchase on Coinbase, a user would now pay roughly $250 in fees, effectively making credit card crypto purchases uneconomical for most. Debit card transactions remain unaffected, indicating that the measures target high-risk leveraged buying.
Banks and Bitcoin: A History of Distrust
Despite bitcoin’s progress in gaining mainstream recognition, the world of traditional finance has responded with caution and self-preservation. The bans are not driven by direct competition but by a deep-seated mistrust of unregulated digital assets. As of early 2018, the three largest U.S. banks had all prohibited credit card crypto purchases. European regulators also ramped up restrictions, with a Visa subsidiary orchestrating a crackdown on crypto-linked debit cards across the continent. This occurred against a backdrop of increasing regulatory pressure on cryptocurrencies worldwide.
Contrasting Fortunes: Bittrex Gains a Bank, Cryptopia Loses One
The same week brought mixed news for exchanges. Bittrex CEO Bill Shihara confirmed in a podcast that the U.S. exchange would soon enable U.S. dollar deposits, freeing itself from reliance on Tether, which had been subpoenaed by U.S. officials. This move was seen as strategic to avoid being “solely reliant on tethers” amid growing regulatory scrutiny. In contrast, New Zealand-based Cryptopia announced that its domestic bank would close its NZDT account on February 9 with extremely short notice, halting all NZDT deposits immediately. Cryptopia’s statement criticized the bank for giving “little opportunity to present our case and provide compliance documentation,” and took a veiled swipe at exchanges that operate with opaque banking relationships until they are shut down.
Conclusion: The Struggle to On-Ramp Fiat Money Persists
Despite surging interest in cryptocurrencies, getting fiat money in and out of exchanges remains as challenging as ever. In 2013, most banks barely knew what bitcoin was; by 2018, they knew all too well and universally shunned it. The banking industry’s conservative stance, combined with payment network fee hikes, underscores a fundamental tension that cryptocurrency must overcome to achieve mainstream adoption. Until a more accommodating infrastructure emerges, credit card bans and cash advance fees will continue to hinder the flow of new capital into the crypto ecosystem.