Why banks block cryptocurrency transactions

Some banks still won’t touch Bitcoin; try and place a cryptocurrency-related transaction with them and it won’t go through. Over a decade after the inception of Bitcoin, crypto, for many banks, is simply too hot to handle.

So, why do some banks block cryptocurrency transactions? The reasons vary between jurisdictions and banks; the world, after all, is a big place. But lawyers and banking experts explain to Decrypt that there are solid reasons that some banks block crypto transactions—and advised on what you can do if your bank has blocked a relevant transaction.

For some banks, it’s illegal to process crypto transactions

Cryptocurrencies simply aren’t legal in many places in the world and it’s thus illegal for banks to process Bitcoin-related transactions. For instance, banks in China or Bolivia won’t process Bitcoin transactions; it’s against the law. 

In other regions, banks are forced to navigate the “gray areas” within which crypto companies often operate, Alexander Anichkin, a partner at law firm Clifford Chance’s Moscow office, told Decrypt. But often, this isn’t worth the effort. “Some of the larger banks just frankly found it easier to say ‘no’ than to try and do the underlying research necessary to understand those transactions and how they work,” Braden Perry of US law firm Kennyhertz Perry told Decrypt. 

In his native Russia, Anichkin said that “It's not that easy to purchase cryptocurrency in a legitimate and reliable way.” Banks must deal with “all sorts of unregulated third-party intermediaries,” he said, including peer-to-peer Bitcoin transactions “without any guarantee that you will get the cryptocurrency that you're paying for.” Licensed exchanges aside, banks aren’t going to play chicken with the authorities.

But rules change: while the Russian government just implemented a bill that will from 2021 ban people from paying for goods or services using cryptocurrency, it is allowing its citizens to buy cryptocurrencies for speculative purposes. “It means that there will be a legitimate way for you to purchase […] cryptocurrencies from Russian banks,” Anichkin said, so long as you report these transactions to the tax authorities. 

Banks don’t want to deal with angry customers...

Even in jurisdictions where cryptocurrency is legal, some banks don’t want to deal with angry customers requesting chargebacks from some crypto-related Ponzi scheme, and don’t think it’s worth the effort. “Some consumers may not understand the whole risks of crypto,” said Perry. And banks don’t want to foot the bill for poorly-informed customers—cheaper to side-step crypto altogether.

Crypto is also volatile. “There is volatility to purchasing, say, 0.2 Bitcoin on a credit card and then the price drops,” Perry explained. Customers may think they’ve been induced in some way, he added; that could prompt them to “challenge that transaction with the credit card company, based on certain criteria that credit card [companies police] when it comes to those types of disputes.”

...or illegal money-laundering by bad ones. 

Banks also don’t want the hassle of dealing with crypto-related crime—whether their customers are the perpetrators or the victims. The lack of regulation within the space is “attractive to some,” said Perry, who “lie, cheat, and steal to make a buck.” 

“Until there's some sort of regulation in place … and these banks are confident that [they have] the enforcement mechanisms necessary to make the system safe, they likely won't touch it,” he said.

For banks, crypto just isn’t worth the effort

Some banks are wholeheartedly embracing cryptocurrency, like Medici Bank, a challenger bank founded by a descendent of the Italian banking family, Prince Lorenzo de' Medici. “It's logical to me that there's a demand for it,” the bank’s CEO, Ed Boyle, told Decrypt. “It's also logical to me that institutions which have for centuries been safeguarding people's valuables would be allowed to safeguard their cryptocurrencies.”

However, for many banks, the cost of allocating time and money to managing their customers’ crypto-related quibbles, and putting systems in place to prevent cryptocurrency crimes or frauds, isn’t worth the effort to serve what’s still a nascent sector. 

After all, the entire cryptocurrency market capitalization is some $360 billion at the time of writing—still a drop in the ocean compared to other industries. For banks to take crypto seriously, “crypto needs to become a little more mainstream itself,” Perry told Decrypt. 

Netanel Kabala, co-founder of fiat-to-crypto on-ramp Simplex, told Decrypt that there are other reasons why banks are worried: “Some are concerned with reputation, while others are nervous that the user would not be able to pay and would default, in the case of credit cards,” he said. But the exact reason isn’t so important: “What it boils down to is that crypto is something that most banks have not taken the time to learn or understand, and they fear the unknown,” he said. 

What to do if your bank has blocked a crypto transaction. 

Stonewalling from banks can be frustrating news for traders trying to use their bank accounts to buy cryptocurrency from exchanges. 

Here’s one scenario: a trader, trying to buy the dip after the latest Bitcoin flash crash, watches the price of Bitcoin soar thereafter—but in frustration, after the bank blocks his transaction. Or another: a trader bought the dip and profited immensely after the price boomed. Hoping to cash out at the top, the trader… can’t. “Denied,” says her bank. She watches the price fall, but her bank won’t accept her pleas. And her profits crumble at her feet.

If the bank usually processes crypto transactions, but has rejected your transaction, you can call them up and ask them to process it. Anichkin, the Russian lawyer, said that “banks can block your transaction if they think it is suspicious and you did not provide them with sufficient explanation.”

But if they won’t, then what? “If you provided sufficient data and the bank still blocks it, then you can take your bank to court,” he said. A drastic, costly and protracted procedure. “It could take a few months at least to get a court order,” he said. And if you make it that far, you’ve got to beat the bank and pray that your crypto transaction for $1,000 worth of Dogecoin is worth enough to cover your massive legal fees in a few years. 

“It’s definitely an uphill battle,” said Perry, “because the banks have quite a bit of leeway.” He said that preventative measures are more effective: avoid using credit cards—use debit cards instead; use Bitcoin ATMs, not online transactions, and most importantly—find a bank that supports crypto.