1% of Mastercard Purchases Before the Crypto Ban Were on Crypto

Apparently Buying $20k Bitcoins on Credit Cards Was a Bigger Problem Than Anyone Aside From the Credit Card Companies Knew… This Clearly Explains the Crypto Credit Card Ban

Crypto wallet funding accounted for 1% of ALL Mastercard purchases in Q4 2017 and Q1 2018 before the crypto credit card ban.^[1][2]

The implications of that should be obvious.

1. 1% of all credit card based debt from Mastercard was from crypto, and thus we can assume it was like this for many credit card companies. To offer very rough figures (see Credit Card statistics and a breakdown of Mastercard’s balance sheet) the annual volume of a company like Mastercard can be over $5 billion and outstanding debt can be as much as 10% of that. Now consider those numbers for every major credit card company. Wow!
2. That shows that not only was there new adoption, but there was a considerable wave of new adoption, and part of that wave was fueled by credit (the volume and price action we saw wasn’t just from the same players pumping coins).
3. It also hints at a sad truth, that should have been obvious to anyone thinking on it, people who bought crypto with credit cards at or near the top and logically are now not in the best spot on average.
4. Clearly the above hints at why credit card companies banned crypto purchases. Although it was good for their businesses short term, this was going to end up looking really bad if the bubble popped (and it did).
5. There is also a little side problem here, that is, the last bull run to $20k relied in part on credit card purchases that are now banned. That creates a need for more non-credit based adoption, not an impossible hurdle in my opinion.

Thus there are a few implications worth considering.

One implication worth considering in more detail is this: to buy with a credit card at the end of 2017 / start of 2018 and have it work out for you had to take profits high (you have a very limited window to do so), make favorable trades (most people aren’t this skilled), or HODL (and then the market needs to go back up considerably from here; which is not impossible).

The problem is that anyone who bought on a credit card and hasn’t paid it back is accruing debt on-top of their current on-paper crypto losses and anyone who sold low owes money back with interest.

This sets up a situation where there is a lot of potential losing going around on-paper in the short term.

Luckily, for those who stick with the crypto gamble, the potential of seeing a return on one’s investment is still there.

You simply can’t put it past crypto to rally to and past all time highs, even without newcomers maxing out their credit cards.

That said, if we think back to the nature of economic bubbles, one thing that really stands out here is the idea that the later stages of bubbles are fueled by wild speculation on credit.

The bubble of 2017 – 2018 has likely already popped and today we seem to be on a new phase, still for academic and historical purposes it is wise to identify and analyze economic bubbles.

In those terms, the parabolic peak of the bubble coupled with the speculation and credit re-tells once again the age old story already laid down by folks like Minsky and shows us what to look for the next time.

Of course, if the credit card ban sticks around, we won’t have that metric to look at next time. Still, any information is good information in a market like this.

Opinions: People talk like Bitcoin can’t have a systemic affect on other markets. This is like saying the US housing market can’t affect the Japanese equities market… clearly incorrect given history. There is a deep irony in Bitcoin causing a bubble that resulted in average people being indebted to centralized financial companies. Satoshi’s vision might have been to make us free, but everywhere in-practice there is chains. Satoshi didn’t force anyone to gamble with their credit cards, but of course the banks didn’t force anyone to take bad housing loans back in the early and mid 2000s either. Really just depends on how you look at the world what you think of all that. The bottom line is that if people don’t pay back the debt on crypto speculation, they will rack up interest and owe USD to financial institutions, and thus will either not participate in the crypto markets or will do so from a handicapped position (or worse will be in a position where they are gambling to pay back gambling debts at somewhat absurd interest rates).

1. Mastercard: Crypto Card Bans A Factor in Q1 Volume Decline. Coindesk.com.
2. Mastercard Stock Breaks Out To Buy Zone After Q1 Earnings Beat. Investors.com.