On Monday 29 January, bitcoin was trading at $11,160 (£7,966 €8,962 ) but fell to $8,064 by Friday 2 February, according to data from CoinDesk. It faced a further drop this Monday as it hit a low of $7,536.
As of 4pm on Wednesday, it had recovered a little to $8,175.
The latest slide, however, saw banks such as Lloyds restrict its credit card customers from purchasing bitcoin or any other cryptocurrencies.
The ban, which started Monday, applies to Lloyds Bank, Halifax, Bank of Scotland and MBNA customers. At the time, a spokesperson for the FTSE 100 bank said: “This is a case of protecting our credit card customers from the risks associated with the volatility in the price of cryptocurrencies.”
Bank of America also confirmed that it is implementing a similar ban and sources have revealed that JP Morgan Chase and Citigroup have done the same. But why are banks doing this?
Lee Robertson, chief executive at adviser Investment Quorum, suspects it is because banks remain on shaky ground post-2008.
“Banks are very bruised after the global financial crisis when their customer care credentials were heavily criticised, and they will still be worried about poor publicity and potential claims from the unwary who have utilised bank products to purchase such a volatile investment,” he says.
“Many larger financial institutions are warning heavily about cryptocurrencies as being hugely unsuitable for those who do not understand the risks involved, if they are even really fully quantifiable. Whilst some of this may appear to be self-interest, it is right that we all point out the potential consequences.”
Richard Stammers, investment strategist at European Wealth, agrees. He argues that there seem to be two reasons why banks might ban these types of purchases: “Fear of potential losses and worries over money laundering”.
He says: “In the case of the losses, the banks are worried they will have to pay up if customers can’t meet their losses. It’s not about consumer protection so much as shareholder protection.
“In the case of money laundering, it is a legitimate worry for banks trying to understand what the ‘source of funds’ is. In terms of impact, it just further ratchets up the pressure on bitcoin, and we expect more action to follow from other financial institutions, regulators and governments.”
Meanwhile, fraudulent activity remains a concern. Last week the FCA issued a warning on the rise of fraudsters offering investments in binary options and cryptocurrencies, such as bitcoin.
The regulator urged the public to be vigilant online as fraudsters often promote through social media channels, such as Facebook, Instagram and Twitter.
Since then, Facebook has also banned cryptocurrency adverts on its website.
A spokesperson for the site said: “Misleading ads have no place on Facebook. That’s why we created a policy to prohibit ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings, or cryptocurrency.
“This policy is intentionally broad as a starting point, and will be enforced across our platforms. We will revisit this policy and how we enforce it as our signals improve and we work to better detect deceptive and misleading advertising practices.”
