Bitcoin Accounts Were Frozen by Large Australian Banks
Bitcoin investors and traders are taking to the Internet to take out their frustration over the news of Australian banks freezing their accounts. This includes famous Youtuber Alex Saunders, who is a Bitcoin and cryptocurrency expert.
Now, are these claims by Saunders and his fellow investors and traders true, or are they meant to drum up noise so the investors and traders can benefit from a dropping price? Well, let’s take a deeper look into the matter.
Claim of Bitcoin Accounts Being Frozen
Saunders took to his Twitter account to make the claim about Australian banks, which is a true statement.
So @NAB @CommBank @WestpacNZ and @ANZ_AU are all freezing customer accounts and transfers to @BTCMarkets @coinspotau @GetCoinJar @coinbase . #Banks can fight it, but people want control of their money #ausbiz #auspol
— Nugget's News Australia (@nugget_alex) December 28, 2017
In Saunders’s social media posting, he is stating that National Australia Bank Ltd. (ASX:NAB), Commonwealth Bank of Australia (OTCMKTS:CMWAY), Westpac Banking Corp (ADR) (NYSE:WBK), and Australia and New Zealand Banking Group (ASX:ANZ) have frozen their clients’ assets. The banks have advised clients to take their cryptocurrency assets to an another exchange that has no relation to a bank, and which is more of an independent trading exchange.
Why Would Large Banks Take These Actions?
Understanding the reasons that cryptocurrencies exist is the first step needed in order to answer the question of why the Australian banks would freeze accounts.
Cryptocurrencies were first formed in 2009, and the intent was to have a decentralized currency that would work around the world. This would exclude the need for any government intervention. For instance, when a country is looking to improve its exporting situation, it will implement monetary policies that make its goods and services more attractive. This creates unfairness in the world economy because it impacts other countries and businesses in a negative manner.
Cryptocurrencies remove this political risk since there is one global price and there are no government entities interfering in order to further their countries’ own best interests.
Another reason why cryptocurrencies came into being was to reduce the reliance on banks. Currently, in order to transfer money to another individual, a bank is needed. When a transfer of funds is completed within the same border, there is a need for one or two banks to be involved. If there is a cross-border transaction between two individuals, there needs to be a minimum of three banks involved—just for the simple task of moving money from one account to another.
This gives more control to the consumer over how they want to manage their own money. Also, it dramatically lowers the fees that would be incurred by the consumer.
The actions taken by these large Australian banks makes perfect sense because the usage of cryptocurrencies is a move against the bank. This over time will impact the banks’ bottom lines and profit margins from everyday business. This is the reason that Alex Saunders and others are pointing to the banks and accusing them of wrongdoing.
However, the real reason that Australian banks have made this this move is their regulatory requirements. The banks must give all financial information to the government when dealing with any client. This is mostly for tax purposes. When individuals and businesses file their taxes, they would owe taxes on any gains. This is to ensure that the right amount of money is paid to fund local and federal spending. Presently, there are no taxes being accounted for on any cryptocurrency gains.
Also, banks must verify all funds of a client. This is to ensure that there isn’t any money put into the banking system that was earned illegally. The intent is to prevent money laundering.
If these steps are not taken by the bank, there could be penalties placed on it for not taking due diligence.
Is the Freezing of Accounts a Total Surprise?
It is not a surprise that some Australian bank accounts have been frozen. For example, Commonwealth Bank stated in June 2017 that it can refuse international transfers or transactions if, among other reasons, the destination account “was used to facilitate payments to Bitcoins or similar virtual currency payment services.” (Source: “Bitcoin investors claim the big four banks are freezing their accounts due to cryptocurrency exchanges,” Business Insider, December 31,2017.)
The freezing of the accounts is to protect its banking network,as well as its current and future customers. This gives the bank some time to complete its due diligence regarding the funds. If penalties were charged to the bank, it would increase banking fees for all of its customers.
The move shows investors and traders that they need to have the right paper trail for the money that they deposit, and the money that is already in their accounts.
What Could Happen to the Frozen Accounts?
In the future, it is possible that money coming from foreign banks will be the only transactions looked at in detail. Funds that are going into the cryptocurrency market from citizens within one country are already being tracked, and they could see no restrictions.
The banks are advising clients to use other trading exchanges for their cryptocurrency needs. Even though the banks are losing out on potential profits, their greater concerns are the regulatory environment, and protecting their current business.
Banks around the world could look at what these Australian banks are doing and follow suit. Another reason why this is a critical move is that the growth drivers for banks are the asset management divisions. These divisions look to invest clients’ money, and they look for the best possible investments with the least volatility. Portfolio managers and traders may look beyond cryptocurrencies because they are so volatile and would not suit a typical investment portfolio. Great losses for clients could also result in losses for the asset management divisions, which no senior manager wants to see.
Therefore, by freezing accounts, it shows that big Australian banks want to stay away from such risky investments. By giving clients little choice, it does make clients rethink where their money is being held, and it is a polite method of telling clients to use a different exchange. The evidence of this is that four large banks worked together to freeze clients’ accounts at the same time.
In the future, debit or credit cards could also be looked at under the same microscope, and could result in further restrictions from banks.