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Aussie Bank, BOQ Warns Against Use of Home Equity to Buy Coins

Aussie Bank, BOQ Warns Against Use of Home Equity to Buy Coins

As expected, Australian banks have issued a red flag not to use home equity to fund cryptocurrency investments. These banks believe that such investments would be in violation of regulatory guidelines by the securities commission. Secondly, the volatile nature of these coins does accentuate the risk factor, and hence the banks do not recommend such investments. Thirdly, banks fear debt and leverage issues from repurposing loans for investment profits.

Bans crypto-buying using housing loans

Cryptocurrency is being explored by new age home investors in Australia. Hence most of the banking system institutions across the world have not encouraged or recommended using the volatile non-secured virtual coins for leveraged purchases as real estate. Bank of Queensland is not the first bank to ban credit loans for purposes of leveraged purchases. Trading is also not accepted since the digital currency environment, not just in Australia but across the world is very fluid, volatile and unregulated in most parts.

Earlier in February, the Commonwealth Bank had banned customers’ form purchasing or investing in virtual currencies with their credit cards. The ban was imposed because of the uncertainty associated with cryptocurrencies due to their volatile price points. The bank opined that purchases of bitcoin or other cryptocurrencies were ‘not appropriate,’ any longer as prices of cryptocurrencies slipped from an all-time high of $20,000 in December 2017.

Amidst fears of further price fall, CBA had followed the actions of overseas central banks which had implemented a ban to prevent investors from making purchases in such volatile products. The biggest fear at that time was the prospect of prices falling by nearly 50{da26b64292448cae047fdcafabcc53ed6814016a2f2689391ec3e81b666ab4a0}; placing customers at great risk. Larger debts would be incurred, and this would eventually hurt bank operations in the long run.  And if purchases were made with credit card interest rates, often at 20{da26b64292448cae047fdcafabcc53ed6814016a2f2689391ec3e81b666ab4a0}, the debt factor would be very steep the regulatory body opined. However, it did not obstruct or provide guidelines on the use of other money held by its customers to invest or buy bitcoin. The bank had not objected to purchases made with debit cards or transaction accounts.

CBA had said that “Due to the unregulated and highly volatile nature of virtual currencies, customers will no longer be able to use their CommBank credit cards to buy virtual currencies.” 

The bank had reiterated that, if investors wanted to invest monies from their transaction accounts it did not ban such activities unless the investors overstepped terms and conditions set by the banks.

Fear of further price slide

The lenders have, this time around, objected to the use of home equity to make purchases which were largely speculative in characteristics. The risks are very high when such capital is used for making volatile purchases. Earlier overseas lenders such as Lloyds Bank in the United Kingdom, JP Morgan Chase in the United States and Bank of America have banned purchases using credit from lenders.

Lenders fear that the lack of price stability or linear growth in prices of bitcoin or alternate coins will have an impact on investments made by home equity holders.

About the author

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Pamela Morgan

Pamela Morgan studied computer science from Massachusetts Institute of Technology (MIT). During her academic years, she has produced a significant number of high-impact scientific publications in the field of blockchain. Her research focuses on models of crypto security and DApps.

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