Last Monday, bitcoin was trading at $11,160 (£7,966) but quickly fell to $8,064 (£5,756) by Friday, according to data from CoinDesk. It faced a further drop this Monday as it hit a low of $7,536 (£5,379).
Its latest downslide has seen banks such as Lloyds Banking Group restrict its credit card customers from purchasing bitcoin or any other cryptocurrencies.
The ban, which started yesterday, 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 officer at 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.”
Inglorious collapse
With banks and social media platforms banning the cryptocurrency, it does appear that bitcoin has overstayed its welcome.
Stammers thinks this is all heading “toward an inglorious collapse”.
“The whole cryptocurrency thing was and is built on sand,” he adds. “A few people who mined at the beginning may have made their fortunes. In fairness, some of those jumped on the bandwagon – even if they didn’t really know what they were buying.
“There is no underlying valuation methodology for it so its not an investment. It’s a bet. Speculation pure and simple – and some will get very rich while others get very poor.”
Robertson adds that while innovation in financial services is to be welcomed, “this is an incredibly dangerous area for the initiated as well as the unwise”.
“It is not a mainstream investment opportunity for many and the potential for loss through fraud, market manipulation, heist etc, just make it incredibly dangerous,” he says.
Demand will skyrocket
However, despite all the alarm bells and cryptocurrencies tanking over the last month, Nigel Green, chief executive officer of deVere Group believes that demand for them will “sky rocket” in the next 12 months.
In light of his predictions, deVere Group launched deVere Crypto, a cryptocurrency app which allows users to store, transfer and exchange currently three major cryptocurrencies, namely bitcoin, ethereum and litecoin. The firm said it expects to add more cryptocurrencies.
Green said: “Bitcoin – the world’s highest profile and largest by market-cap cryptocurrency – slumped by 30% last week. There’s increasing scrutiny of the market by governments around the world, plus enhanced regulation. Therefore, it is perhaps unsurprising that some have questioned the timing of the official launch of deVere Crypto.
“However, demand for cryptocurrencies is set to sky rocket in 2018 as more people get to know about them and use them, and as the interest of governments and businesses, and more regulation, demonstrate how the market is maturing and becoming ever-more mainstream.”
Green continued that while bitcoin will remain “highly volatile” over the next year and face pressure from rivals, “when it recovers from its current position”, the cryptocurrency could surge by 50 to 60%, “as many will jump in for fear of missing out for a second time”.
