Binance, the world’s leading cryptocurrency exchange by trading volume, will temporarily suspend bank transfers in USD. The exchange said in a February 6 tweet that no other trading methods would be affected. The announcement came without explanation. However, the CEO of the exchange, Changpeng Zhao, noted in a tweet that the suspension would only affect 0.01% of the exchange’s total users, assuring that they hope to resolve the issue soon.
Binance recently ran into related financial troubles in the US. On January 21, its SWIFT partner, Signature Bank, announced that from February 1, it will only accept transactions from customers with US dollar bank accounts greater than $100,000. The bank has previously said it is severely limiting deposits from crypto consumers.
At the time, Binance stated that it was looking for a new SWIFT partner and that all SWIFT transactions using other currencies, as well as USD trading using credit or debit cards, would continue to be accepted.
Signature Bank’s latest action came after it announced plans to sell up to $10 billion worth of crypto deposits in December to reduce its exposure to turbulent market changes. “We are not a cryptocurrency bank. We don’t want to be tied to any particular sector or client,” CEO Joe DePaolo said at the time.
A Binance spokesperson told Cryptooshala, “We are suspending bank transfers in USD as we upgrade our services. We have contacted affected users directly and regret any inconvenience this causes,” he added:
“We are actively working on finding an alternative solution for SWIFT bank transfers. We have since suspended all bank transfers in US dollars as we work to update the service. 0.01% of our average monthly users use US bank transfers.”
Nansen data shared with Cryptooshala shows notable stablecoin moves include crypto trading group Jump withdrawing $160 million in stablecoins and Oapital, a digital asset investment company withdrawing $230 million.
Andrew Thurman, head of content at Nansen, told Cryptooshala: “Jump and Oapital are big players who, however, tend to scatter large amounts, and it’s hard to fully attribute these moves to a bank ad. I would argue that the seven-day outflow might be a little high, but the 24-hour inflow shows that this is far from a panic.”
Crypto turmoil forces banks to be cautious
Banks are generally hesitant to deal with digital assets, especially without uniform rules governing the emerging market. In many countries of the European Union, this has evolved into a complete ban at the national level of regulation until the Crypto Asset Markets package, a pan-European regulatory set for digital assets, comes into force.
For banks, the most important thing is to remain part of the financial system, and if they feel that they can be cut off due to too much risk, they simply will not go for it from the very beginning.
Tony Petrov, general counsel for Sumsub, a compliance services provider, told Cryptooshala that the ongoing bear market is another reason for the bank’s recent actions, stating: “When the crypto market skyrocketed, some banks were simply forced into the market. the open arms of cryptocurrency exchanges: they did not have a bad reputation, their open faces inspired confidence, and the fear that most banks had little or no understanding of the crypto industry could not surpass the unprecedented profits that could be made in crypto.” He continued:
“But the time of throwing stones can be replaced by the time of collecting them. And now some banks that have been heavily involved in crypto may rethink their involvement and change their policies.”
He added that crypto companies will make an effort to “rebuild their reputation, and for that they will need a stricter compliance infrastructure. Ideally, some third parties guarantee the required levels of risk management to align the approaches of crypto exchanges and banks and restore mutual trust to both sides of global finance.”
Lars Seier Christensen, founder of Saxo Bank, believes that the FTX events and other crypto disasters, combined with low market volumes, have eroded confidence in the industry. Banks believe that the benefits associated with cryptocurrency trading are out of proportion to the growing regulatory and business risks.
Obviously, the more difficult the access, the fewer new customers and deposits will hit the exchanges, which will exacerbate the problems they already have with low volume. Speaking about how cryptocurrency exchanges can mitigate this hurdle, he explained:
“A number of credit card companies continue to support payments to companies that banks often impose restrictions on, such as gambling, adult sites and others. But the best thing the industry as a whole can do is to accept and welcome clear rules and enforce them strictly, and help shape them with your knowledge.”
Eddie Hui, COO of crypto exchange platform MetaComp, told Cryptooshala that it’s not uncommon to see an increase in banking on exchanges where customers are trying to withdraw their cash at the same time.
Decreasing exposure to crypto and trying to diversify the customer base will mitigate this risk. It is clear that this is a reasonable decision for banks and their shareholders, who could be burned by the cryptocurrency market in 2022.
He added that in the case of Silvergate, they placed a cap on transactions below $100,000. Some exchanges may decide to consolidate withdrawals and conduct “withdrawals on schedule using a third party payment company, but this may result in additional costs, delays, transaction burden and counterparty risk.”
Hui further commented, “The bottom line is that workarounds may exist, but unfortunately the gap between cryptocurrencies and banks is widening again as the end customer will be paying the price for these changes.”
The recent actions of Binance’s USD banking partner have left the crypto community baffled, especially after the disastrous 2022 when many crypto goliaths fell off the top, trust in the crypto ecosystem has suffered. While regulators say that crypto will be their priority, experts believe uniform rules are needed to restore that trust. Until then, exchanges will have to address obstacles and risks on their own.
Credit : cointelegraph.com
