The COVID-19 pandemic has made a significant impact o the global monetary system. In the US, there are now some tough decisions to be made. One such decision by Capital One rubs a lot of people the wrong way, which is to be expected.
The Capital One Problem
As one of the primary banks in the United States, Capital One has a very big customer base. Under normal circumstances, that is a good thing. During times of a global pandemic, it creates a fair few logistical problems. More specifically, the institution has begun to cut borrowing limits on credit cards. Announcing such a measure with millions of Americans filing for unemployment is anything but welcome.
Because of this decision, millions of Americans will suffer financially. Spending limits can be reduced by as much as two-thirds, which is quite an invasive solution. If an emergency expense occurs, it will become very difficult for a lot of households to make ends meet. It is not uncommon for Capital One to review spending limits every now and then. Especially during uncertain times like these, it is an option to explore.
Incorporating these changes without prior warning is a problem, however. Making such drastic changes seemingly overnight will irk a lot of people. It is unclear how many people are affected by this decision as of right now. Capital One is the third-largest US credit card lender. As such, their decision will create a potential precedent for other banks to follow in the coming months.
A Business Model That Backfires
For years now, people have claimed how Capital One maintains a predatory business model. It is primarily providing credit cards to risky profiles. Offering hope to the people already struggling, and then taking it away overnight, is very problematic. At the same time, it was a matter of time until the credit card industry took some serious hits.
More specifically, the industry has been under a lot of pressure lately. Congress and President Trump have yet to agree on extending unemployment benefits. With unemployment in the US well above 10%, credit card spending becomes a lot more important. Now that this is no longer an option for some Capital One users, a very interesting situation has been created.
Some people have already been forced to max out credit limits. With Capital One now going down this route, it is a matter of time until JPMorgan Chase and Citigroup follow suit. If they don’t follow this example, they can risk facing serious liquidity issues moving forward.
Impact on Bitcoin?
As numerous Capital One users see their borrowing power reduced, buying Bitcoin is not a viable option for most. After all, consumers often purchase BTC with some of their excess funds. Some even set up recurring purchases, but that may no longer be a viable option either. All accessible funds will be needed to make ends meet for the foreseeable future.
Keeping that in mind, it is possible Bitcoin purchases through a credit card will begin to dip slightly. As BTC’s value is already on weak legs, that isn’t an ideal situation. However, consumers need to prioritize financial survival above everything else.
How long the current global monetary system can be sustained, is a different matter. Capital One’s decision further highlights the proverbial cracks in the wall.
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