Despite UK law having no issue with cryptocurrencies, the financial industry seems to be setting its own rules. Several people have reported having their account frozen after using an exchange. Others have experienced the same after connecting their debit card.
Several UK banks have now banned using credit cards to buy Bitcoin. They cite customers borrowing more than they can afford to repay as the cause. Four major Australian banks have also blocked transfers to major exchanges.
Why are banks freezing accounts?
It’s not clear exactly why banks are doing this. Reports suggest only a fraction of the people using exchanges have had their accounts frozen. No UK bank has provided a public explanation yet. However, there are two main possible explanations.
Banks could be trying to suffocate cryptocurrencies and get rid of them completely.
You only need to read the first sentence of Satoshi’s white paper to know traditional banks and Bitcoin were never going to be friends. From that and a message in the first mined block, its evident Satoshi designed it to replace them. They’d be crazy to ignore it. There’s also talk of banks releasing their own oxymoronic digital currencies.
The transactions are difficult to process and carry complications we aren’t aware of.
Simple technical problems could explain the random nature of the account freezes. Financial institutions may need to verify the source of funds; cryptocurrencies could be causing problems with that. Large deposits can raise alarms anyway which could explain account freezes following withdrawals.
Even in the crypto-friendly Netherlands, at least one person has had issues. The fact that the bank resolved it when they complained indicates it could be technical. And it doesn’t make much sense that some measures are publicly explained (e.g. the credit card ban) and others are not.
The overall lack of communication about the issue is concerning.
The question is, have banks shot themselves in the foot by turning away customers?
Account freezes have, for some, only strengthened their enthusiasm for cryptocurrencies. It’s a perfect illustration of the control banks have over us. Without justification, they can leave customers without access to their deposits.
If this is intentional, banks are underestimating something important: the tenacity and passion of crypto enthusiasts. They make Wile E Coyote look like a quitter. Events like this are a challenge, not a dead end.
How can you avoid getting your account frozen for buying Bitcoin?
There are a few options. You could open a separate account for buying Bitcoin. If that gets frozen, you still have access to your main account. You could switch altogether to a bank not known for having issues with crypto.
But the available options are cumbersome for those who trade often. Plus, it means signing up for multiple services, increasing the number of potential points of failure. And it doesn’t prevent account freezes, it just minimises the impact on your life.
That’s why Wirex is launching a crypto-friendly personal finance platform which you can use to buy, store, sell and spend Bitcoin within a single app. There’s no risk of your multi-currency account getting frozen for buying crypto and you’ll be able to use a real debit card for it.