Banks ban use of credit cards to buy bitcoin as value tumbles below US$7000

Bitcoin is trading down 11 per cent today at US$7255. Picture / Getty Images

Banks in Britain and the US have banned the use of credit cards to buy bitcoin and other "cryptocurrencies", fearing a plunge in their value will leave customers unable to repay their debts.

Bitcoin staged a spectacular rise in value, reaching a peak of US$19,187 on December 16 on the Luxembourg-based Bitstamp exchange.

But the biggest and best-known cryptocurrency has since fallen dramatically and according to Bloomberg is down 20 per cent in the last three days to US$6857.

Lloyds Banking Group, which issues just over a quarter of all credit cards in Britain, and Virgin Money said they would ban credit card customers from buying cryptocurrencies, following the lead of US banking giants JPMorgan Chase & Co and Citigroup.

The move is aimed at protecting customers from running up huge debts from buying virtual currencies on credit, if their values were to plummet, a Lloyds spokeswoman said.

Concerns have arisen among credit card providers because their customers have increasingly been using credit cards to fund accounts on online exchanges, which are then used to purchase the digital currencies.

However, other banks today said they would continue to allow credit card customers to buy cryptocurrencies.

"We constantly review our protections for customers as a responsible bank and lender, and are keeping this matter under close review," said a spokeswoman for Barclays.

Barclays is Britain's leading credit card issuer with a market share of around 27 per cent through its Barclaycard brand.

"At present UK customers can use both their Barclays debit card and Barclaycard credit card to purchase cryptocurrency legitimately," the Barclays spokeswoman said.

Spain's second-biggest bank BBVA also said it has no restrictions in place on such purchases.

Last week Mastercard, the world's second biggest payments network, said customers buying cryptocurrencies with credit cards fuelled a 1 percentage point increase in overseas transaction volumes in the fourth quarter.

The decision on whether to allow credit card users to buy cryptocurrencies is a credit risk decision made by the card-issuing banks, said a spokesman for Mastercard.

A spokeswoman for Chase bank said it is not currently processing credit card purchases of cryptocurrencies because of the volatility and risk involved, while a Citi spokeswoman confirmed a similar ban, but did not give a reason.

The bans extends only to credit card purchases, with debit card users still able to buy cryptocurrencies.