September 22, 2015
In a major setback to the bitcoin commodity, banks in Australia are closing accounts of bitcoin companies. The decision made by major Australian Banks has forcefully put 13 bitcoin companies out of business. Major banks like Westpac Banking Corporation and Commonwealth Bank of Australia have already sent letters to at least 17 bitcoin companies, and approximately 13 companies have already had their accounts closed. There were no explanations given for this sudden decision. According to ADCCA estimates, 7% of the world's $5 billion worth of bitcoin is in circulation in Australia.
CEO and Founder of Bit Trade Australia, Ronald Tucker said, Our members have been unable to obtain any formal clarification on the reasons for closure, except for references to policy or risk. Just what policies or risks these are have not been specified.
Let us look at what can be probable reasons for this step taken by Australian Banks:
Since there is no central authority governing bitcoin, no one can guarantee its minimum valuation. If a large group of merchants decide to dump bitcoins and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in bitcoins.
According to the spokesperson of one of the big four banks of Australia, the current bitcoin operating model requires very tough compliance and assurance requirements to ensure that the banks meet the high standards required under anti-money laundering regulations.
Recently, the state of New York issued extensive new rules for companies that operate in virtual currencies such as bitcoin. According to the new regulation framed by New York, the digital currency companies must obtain prior approval for material changes to their products or business models. This means that compliance is also needed from wallet firms offering exchange services. Moreover, the presence of a compliance officer is compulsory and every firm has to maintenance capital reserves determined by the New York State Department of Financial Services. Companies seeking funds would not need approval from the state for every round of venture capital funding or standard software updates.
The security aspect:
Another major reason is security. Bitcoin still has to gain mainstream adoption. In order to reach that goal, a number of bitcoin players are making efforts towards adopting highly effective security measures. Some bitcoin startups are really trying to attack the problem head-on and some companies have already come up with secure bitcoin mobile wallet solutions.
Threat to the financial sector:
One of the main reasons could be that the wave of digital currencies could have threatened the banks as this digital technology is gaining momentum and has the potential to disrupt the financial sector.