Binance banking issues highlight a rift between crypto firms and banks

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Binance, the world’s largest crypto exchange by trading volume, will temporarily suspend US dollar bank transfers. The exchange said in a tweet on Feb. 6 that no other trading methods would be affected. The announcement came without explanation. However, the exchange’s 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 seek to resolve the issue soon.

Recently, Binance encountered related financial issues in the United States. On January 21, its SWIFT transfer partner, Signature Bank, announced that as of February 1, it would only accept transactions from customers with US dollar bank accounts over $100,000. The bank had previously said it was severely restricting cryptocurrency consumer deposits.

At the time, Binance said it was looking for a new SWIFT partner and that all SWIFT transactions involving other currencies, as well as US dollar transactions using credit or debit cards, would continue to be accepted.

Signature Banks’ most recent action comes after it disclosed plans to sell up to $10 billion in crypto deposits in December in a bid to reduce its exposure to turbulent market shifts. “We’re not a cryptocurrency bank. We don’t want to be obligated to any particular industry or customer,” Joe DePaolo, CEO of the bank, said at the time.

A Binance spokesperson told Cointelegraph: We are suspending USD bank transfers while we upgrade our services. We have contacted affected users directly and regret any inconvenience this causes, adding:

We are actively working to find an alternative solution for SWIFT bank transfers. We have since suspended all USD bank transfers while we work to upgrade the service. 0.01% of our average monthly users use US bank transfers.

Nansen data shared with Cointelegraph shows that notable stablecoin moves include crypto trading group Jump withdrawing $160 million in stablecoins and Oapital, a digital asset investment firm, withdrawing $230 million.

Andrew Thurman, head of content at Nansen, told Cointelegraph that Jump and Oapital are, however, big players who regularly spend large sums and it is difficult to fully attribute the moves to the banking announcement. I’d say the seven-day outs might be a bit high, but the 24-hour ins show it’s far from panic.

Turmoil in the crypto market makes banks cautious

Banks are generally hesitant to deal with digital assets, especially without uniform regulations governing the nascent market. In many countries of the European Union, this has turned into an outright ban at the national regulatory level until the Markets in Crypto-Assets package, a pan-European regulatory package for digital assets, comes into force.

For banks, the most important thing is to stay in the financial system, and if they feel they might be cut off because they took too much risk, they just won’t take it to begin with.

Tony Petrov, legal director at compliance-as-a-service provider Sumsub, told Cointelegraph that the ongoing bear market is another reason behind the bank’s recent action, saying, “When the crypto market was skyrocketing , some banks were simply thrust into the open arms of crypto exchanges: they didn’t have a bad reputation, their open faces inspired trust, and fear that most banks had little or no understanding of the crypto industry. crypto couldn’t beat the unprecedented numbers of profits that could be made in crypto.

But the time to scatter the stones can be replaced by the time to collect them. And now some banks that were actively involved in crypto might rethink their involvement and change their policies.”

He added that crypto companies will make an effort to restore their reputation, and for that they will need a stricter compliance infrastructure. Ideally, some third party guarantees the required levels of risk management, to harmonize the approaches of crypto exchanges and banks and to restore mutual trust on both sides of global finance.

Lars Seier Christensen, the founder of Saxo Bank, believes that developments around FTX and other crypto disasters, combined with low volumes in the market, have hurt confidence in the industry. Banks believe that the benefits associated with crypto-trading activity are not commensurate with the growing regulatory and commercial risks.

Obviously, the harder the access, the fewer new customers and deposits will find their way to the exchanges, compounding the problems they are already having with low volume. Talking about how crypto exchanges can mitigate this hurdle, he explained:

A number of credit card companies still accept payments from businesses 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 embrace and welcome clear regulations and strictly adhere to them, and help shape them with their knowledge.

Eddie Hui, chief operating officer of crypto exchange MetaComp, told Cointelegraph that it is not uncommon to see an increase in bank runs on exchanges where customers attempt to withdraw their money at the same time. time.

Reducing crypto exposure and trying to diversify the customer base would mitigate this risk. Naturally, this is a sensible decision for banks and their shareholders to make, who may have been burned by the crypto market in 2022.

He added that, in the case of Silvergate, the restriction imposed was on transactions below $100,000. Some exchanges may decide to consolidate withdrawals and make scheduled withdrawals using a third-party payment company, but this may incur additional costs, delays, operational overhead, and counterparty risk.

Hui added: The bottom line is that workarounds may exist, but it is unfortunate to see the gap between crypto and banks widening again, as the end customer will pay the price for these changes.

The recent action of Binance’s USD banking partner has raised many eyebrows in the crypto community, especially after a disastrous 2022 that saw many crypto goliaths fall from the top, confidence in the crypto ecosystem taking a hit. . While regulators have said crypto will be their top priority, experts say uniform regulations are a must to restore that trust. Until then, exchanges will have to mitigate the obstacles and risks on their own.

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