Bankers say that the ban on virtual currencies is aimed at protecting their customers from falling prey to frauds
Banks in the UK and the US have also banned use of credit cards to buy Bitcoin and other cryptocurrencies, fearing plunge in their value will leave customers unable to repay their debts. Lloyds Banking Group, JP Morgan Chase and Citigroup have banned their credit card customers from buying cryptocurrencies.
Banks in the UAE have also reportedly instructed their employees not to allow transactions via their bank accounts relating to cryptocurrencies. Bankers say that the ban on virtual currencies is aimed at protecting their customers from falling prey to frauds resulting from transactions undertaken through such unsecure methods.
Banks do not want to be held liable for transactions undertaken via cryptocurrencies. Online trading in cryptocurrencies is a high risk that breeds much room for embezzlement.
"Globally, we have made the decision to no longer permit credit card purchases of cryptocurrency. We will continue to review our policy as this market evolves," Citi bank said in a statement to Khaleej Times.
Emirates NBD, Dubai's largest bank, also confirmed that it doesn't accept cryptocurrencies for remittances. However, the bank doesn't prohibit customers from undertaking transactions in blockchain-based trading platforms and cryptocurrencies.
"Emirates NBD does not accept cryptocurrencies or support cryptocurrency remittances but it does not prohibit customers from undertaking transactions involving blockchain-based trading platforms and cryptocurrencies," it said in a statement to Khaleej Times.
"Emirates NBD has policies, systems and controls to detect and prevent financial crime including money laundering, terrorist financing and breaches of international sanctions in line with its regulatory obligations and the expectations of our correspondent banks. It is, therefore possible that some transactions associated with cryptocurrencies may be rejected by Emirates NBD or declined as a result of rejections by other domestic or international correspondent banks," the statement said.
Meanwhile, HSBC Middle East refused to comment.
Mastercard, the world's second biggest payments network, said last month that customers buying cryptocurrencies with credit cards fuelled a 1 percentage point increase in overseas transaction volumes in the fourth quarter.
The UAE Central Bank governor Mubarak Rashid Al Mansouri said earlier this year that UAE and Saudi Arabia are considering introducing cryptocurrency for bilateral trade.
Speaking recently at a forum in Abu Dhabi, Al Mansouri said the underlying technology behind cryptocurrency and other financial technology is beneficial to the banking sector.
According to S&P, many central banks are carefully looking at cryptocurrencies and exploring the potential for creation of a central bank-backed cryptocurrency.
Volatility dominates
Bitcoin, the mother of all cryptocurrencies, has seen head-spinning volatility over last few months, many becoming millionaires overnight and many more went bust as well when cryptocurrencies nosedived following concerns from different quarters around the world. Its price plunged from nearly $20,000 to less than $10,000 in just a few month time. It hit an all-time high of $19,498 on December 12, 2017 but fell by over 30 per cent to $13,546 on January 1, 2018, reflecting extremely volatility days of the currencies. Year-to-date, Bitcoin has fallen by 29 per cent to $9,600 on Monday morning.
A survey by earlier this month by a consumer product services website Finder disclosed that Ethereum will see the biggest increase in market cap at 212 per cent followed by Bitcoin at 194 per cent and Bitcoin Cash at 123 per cent.
In terms of price prediction, Ethereum is projected to trade $2,550 by end of this year; while Bitcoin and Bitcoin Cash are forecast to trade at $29,533 and $2,721, respectively, taking the top two spots, according to the report.
In the UAE, the major cryptocurrencies in demand still remain to be Bitcoin, Ripple, Ethereum and Litecoin, said Vijay Valecha, chief market analyst, Century Financial.
"However, Cardano, Neo, Monero and Stellar are gaining a lot of demand in the past few months. Investors are advised to avoid cryptocurrencies as a major investment source and be very careful if investing in them," he added.
According to S&P, there were 1,523 outstanding cryptocurrencies on February 10, 2018 with a market cap of $394 billion. On Monday, coinmarketcap.com's data showed that 916 cryptocurrencies' market cap was around $352 billion,
Mohamed Damak, primary credit analyst, S&P, said cryptocurrencies as a speculative instrument which would have an insignificant effect on global financial stability if its value were to collapse. But retail investors would endure most of the impact, while rated banks wouldn't feel the hit since they are largely insulated, thanks to their limited direct and indirect exposure and cautious approach.
"More importantly, we believe that blockchain technology - which is what underpins cryptocurrencies, enabling the creation of a shared digital transaction ledger - could be a positive disrupter for various financial value-chains. If widely adopted, blockchain could have a meaningful and lasting impact on the celerity, traceability and cost of financial transactions," Damak said, adding that cryptocurrencies are still not widely accepted as payment instruments, although the list of companies accepting them have increased over the past few years.
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