Binance, the world’s leading crypto exchange by trading volume, will suspend bank transfers in US dollars. The exchange said in a tweet on February 6 that no other trading methods will be affected. The announcement came without explanation. However, exchange CEO Changpeng Zhao noted in a tweet that only 0.01% of the exchange’s total users will be affected by the suspension while assuring that they will resolve the issue as soon as possible.
Recently, Binance encountered related financial problems in the U.S. On January 21, SWIFT’s transfer partner, Signature Bank, announced that, starting February 1, it will only accept trades from clients with US dollar bank accounts of more than $100,000. The bank previously announced that it is limiting deposits from cryptocurrency consumers.
At the time, Binance stated that they are looking for new SWIFT partners and that all SWIFT trades involving other currencies, as well as trades in US dollars using credit or debit cards, will continue to be accepted.
Signature Bank’s latest move comes after it announced plans to sell up to $10 billion in crypto deposits in December in an effort to reduce its exposure to turbulent market swings. “We are not a cryptocurrency bank. We do not want to be bound to a certain sector or client,” said Joe DePaolo, CEO of the bank, at the time.
A Binance spokesperson told Cointelegraph, “We are pausing USD bank transfers while we upgrade our service. We have contacted the affected users immediately and regret any inconvenience caused,” adding:
“We are actively looking for an alternative solution to SWIFT bank transfers. We are currently pausing all USD bank transfers while we work to upgrade the service. 0.01% of monthly users on average use US bank transfers.
Data Nansen shared with Cointelegraph showed that prominent stablecoin movements including crypto trading group Instant pulled in $160 million in stablecoins and Oapital, a digital asset investment company, pulled in $230 million.
Andrew Thurman, head of content at Nansen, told Cointelegraph, “Jump and Oapital are big players that regularly move large amounts, but it’s very difficult to attribute these movements to banking announcements. I would say that the seven-day outflow may be a bit high, but the inflow 24 hours shows that there is no panic.
Turmoil in the crypto market is making banks cautious
Banks are generally hesitant to deal with digital assets, especially without uniform regulations governing the new market. In many countries of the European Union, this is a total ban at the national regulatory level until the Markets in Crypto-Assets package, a pan-European set of regulations for digital assets, is implemented.
For banks, the most important thing is to remain part of the financial system, and if they feel they can be cut for taking too much risk, then they won’t do it.
Tony Petrov, chief legal officer at compliance-as-a-service provider Sumsub, told Cointelegraph that the ongoing bear market was another reason behind the bank’s action, stating, “When the crypto market is on the rise, some banks are just pushed into the open arms of crypto exchange: He does not have a bad reputation, his open face inspires confidence, and the concern that most of the banks have little or no understanding of the crypto industry cannot overcome the unprecedented figures of profits that one can make in crypto. He continued:
“But the time of distributing stones can be replaced by the time of collecting. And now some banks that are actively involved in crypto may rethink their involvement and change their policies.
He added that crypto businesses will strive to “restore their reputation, and for that, they need a stricter compliance infrastructure. Ideally, some third party will guarantee the necessary level of risk management, to harmonize the approach of crypto exchanges and banks and return mutual trust on both sides of global finance.
Lars Seier Christensen, the founder of Saxo Bank, believes that the developments surrounding FTX and other crypto disasters, combined with low volumes in the market, are affecting confidence in the industry. Banks believe that the benefits associated with crypto trading activities are not proportionate to the increased regulatory and business risks.
Clearly, the more difficult the access, the fewer new clients and deposits will find their way to the exchange, compounding the problems already faced by low volumes. Speaking about how crypto exchanges can reduce this barrier, he explained:
“Some credit card companies still support payments to companies that banks often restrict, such as gambling, adult sites and others. But the best thing that the industry as a whole can do is to accept and accept clear and strict regulations, as well as help create that knowledge.
Eddie Hui, chief operating officer at crypto exchange platform MetaComp, told Cointelegraph that it is not uncommon to see an increase in bank runs on exchanges where clients are trying to withdraw cash at the same time.
Reducing your crypto exposure and trying to diversify your client base will reduce that risk. Of course, this is a wise decision for the bank and its shareholders, who may be set on fire by the crypto market in 2022.
He added that, in the case of Silvergate, the limit imposed was on transactions below $100,000. Some exchanges may decide to bundle withdrawals and “via scheduled withdrawals using third-party payment companies, but this may introduce additional costs, delays, operational burdens and counterparty risks.”
Hui further commented: “The bottom line is that there may be a solution, but it is unfortunate that the gap between crypto and banks is widening again, because the end client will pay the price of the change.”
The recent actions of the USD banking partner Binance raised many eyebrows in the crypto community, especially after the 2022 disaster that caused many crypto goliaths to fall from the top, confidence in the crypto ecosystem took a hit. While the regulatory body says that crypto will be a priority, experts believe that uniform regulation should be rebuilt. Until then, the exchange has to reduce its own obstacles and risks.