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Isn't buying crypto on a credit card basically leveraged speculative trading on an extremely volatile asset? Considering that many people who are buying crypto

Isn't buying crypto on a credit card basically leveraged speculative trading on an extremely volatile asset? Considering that many people who are buying crypto are doing it for investment purposes, it's pretty obvious why banks would frown on this. The downside risk is enormous, it distorts their credit models, and they have no way to contain damage by margin calling.

tankenmate 9y ago
And yet post Glass-Steagell banks will happily borrow equities to short them, even with money provided by investors.
- Thriptic 9y ago
  Investors loan them money with the knowledge that they do that, and banks have risk models in place to try to mitigate the risk associated with those trades. Banks agreed to extend credit to Bob from accounting so that he could buy consumer goods, not so he could participate in leveraged trading. The average individual is utterly unprepared for that risk and doesn't understand it, and banks aren't prepare to accept that risk. If you force them to, they will be much more conservative in who they give credit to, and the average user will lose out as a result. It's far easier to ban stupidly risky behavior than build it into their credit models. Also, if people want to do leveraged trading, there are mechanisms to do it outside of credit cards. The fact that people are using credit cards in itself suggests that they are unsophisticated and should not be doing such trades.
MBCook 9y ago
I agree I wonder how many people bought stuff a few weeks ago when there was an obvious massive bubble and tried to do charge backs or disputes when the price started falling and they releaized how much they lost? Between that, payments to ransomware, whatever online drug markets exist, etc... can’t blame them at all.
chrisco255 9y ago
Some people blow credit card limits on booze and clothes. Please tell me how that is somehow a more justified purchase than crypto.
- ahakki 9y ago
  If you buy booze and clothes you know you won‘t see your money again.
- Thriptic 9y ago
  People buy consumer goods knowing that they're not going to get that money back. A lot of people buy crypto because they think it can only increase in value, and so they end up spending far more than they are willing to lose when the value goes down. It's not that one purchase is "better" than another, it's that people think about the purchases differently which leads to more risky behavior when it comes to buying crypto.

tankenmate 9y ago

And yet post Glass-Steagell banks will happily borrow equities to short them, even with money provided by investors.

Thriptic 9y ago
Investors loan them money with the knowledge that they do that, and banks have risk models in place to try to mitigate the risk associated with those trades. Banks agreed to extend credit to Bob from accounting so that he could buy consumer goods, not so he could participate in leveraged trading. The average individual is utterly unprepared for that risk and doesn't understand it, and banks aren't prepare to accept that risk. If you force them to, they will be much more conservative in who they give credit to, and the average user will lose out as a result. It's far easier to ban stupidly risky behavior than build it into their credit models. Also, if people want to do leveraged trading, there are mechanisms to do it outside of credit cards. The fact that people are using credit cards in itself suggests that they are unsophisticated and should not be doing such trades.

MBCook 9y ago

I agree I wonder how many people bought stuff a few weeks ago when there was an obvious massive bubble and tried to do charge backs or disputes when the price started falling and they releaized how much they lost? Between that, payments to ransomware, whatever online drug markets exist, etc... can’t blame them at all.

chrisco255 9y ago

Some people blow credit card limits on booze and clothes. Please tell me how that is somehow a more justified purchase than crypto.

ahakki 9y ago
If you buy booze and clothes you know you won‘t see your money again.
Thriptic 9y ago
People buy consumer goods knowing that they're not going to get that money back. A lot of people buy crypto because they think it can only increase in value, and so they end up spending far more than they are willing to lose when the value goes down. It's not that one purchase is "better" than another, it's that people think about the purchases differently which leads to more risky behavior when it comes to buying crypto.