US a Crypto Exchange Scarecrow — What Needs to Change?
Half of the top-30 crypto exchanges try to avoid dealing with U.S., despite it being one of the biggest markets.
America is the land of opportunity, so long as you don't happen to be a cryptocurrency exchange. For several years now, a number of prominent exchanges have opted not to serve U.S. citizens; in fact, the list of trading platforms avoiding the U.S. is still growing, with Bancor recently announcing that it would block U.S. citizens from using its website to convert tokens.
As can be guessed, regulation — or rather, the lack of clear regulation — is the main reason why crypto exchanges are increasingly shying away from the U.S. Exchanges complain about the uncertainty of U.S. securities legislation, about the failure of legislators to respond quickly enough to the rise of crypto with corresponding laws, and about how the lack of a transparent regulatory framework is putting America's domestic cryptocurrency industry at a competitive disadvantage.
However, despite the relative hostility of the current regulatory environment, industry figures are hopeful that it's only a matter of time before the U.S. government and legislature come through with clear and workable crypto regulation. At the same time, Binance has just announced Catherine Coley as the CEO of its Binance.US platform. The selection of Coley, who has experience such as heading institutional foreign exchange at Morgan Stanley, demonstrates that U.S.-focused and regulatory-compliant exchanges may increasingly be the way to go as crypto enjoys more adoption and mainstream recognition. And with certain new exchanges also setting up in the U.S., it would seem that crypto is prepared to do what it takes to crack the American market.
A history of exiting
While the blocking of U.S. customers has gathered steam over the past few months, the first notable instance of exclusion occurred in August 2017, when Bitfinex announced that it would "be discontinuing services to our existing U.S. individual customers." Then the biggest exchange in terms of BTC/USD trading volume, Bitfinex blamed crypto-fiat banking difficulties for the decision, the likelihood that regulation could become stricter rather than more permissive, and the relative unimportance of U.S. customers for its revenues. The company’s press release declared:
"While we have been able to normalize banking for some corporate customers and individuals in certain jurisdictions, compliant banking solutions for U.S. individuals remain elusive. [...] We anticipate the regulatory landscape to become even more challenging in the future."
This move came roughly a year after Bitfinex suffered a notorious hack worth 119,756 BTC and around four months after Wells Fargo stopped processing outgoing wire transfers for Bitfinex's customers. It also followed suspicion regarding the status of Tether (USDT) and the failure of iFinex (which owns Bitfinex and Tether) to publish an audit of the stablecoin's reserves. Also, given that U.S. authorities and regulators had begun devoting extra attention to crypto exchanges at this time (as evinced by the indictment of the Russian owner of the BTC-e exchange in July), it also appeared as though Bitfinex was preemptively seeking to avoid any unwanted legal scrutiny.
However, as curious as this exit from the American market may have seemed at the time, Bitfinex certainly wouldn't be the last exchange to exclude U.S.-based customers, although it would take a while before another prominent platform followed its example. The first to do so was Poloniex, which stopped offering trades in nine cryptocurrencies to U.S. customers in May of this year, citing unclear securities legislation as its motivation. Then came Bittrex, which barred U.S. users in June from trading in 32 currencies, and was soon followed by Bancor, which excluded U.S. customers completely from its web-based platform.
There was also Binance, which announced in June that it would stop serving American customers as of Sept. 12. Of course, Binance is in the process of launching a U.S.-only exchange that is fully compliant with all relevant American regulations, so this isn't a complete withdrawal. Nonetheless, the fact that certain altcoins will become inaccessible to U.S. traders (even with U.S.-dedicated exchanges) indicates that America's regulatory environment is restricting its domestic cryptocurrency market and industry.
And aside from the exchanges that have pulled out of the U.S., there are also dozens of platforms that have always blocked U.S. customers. These include many of the biggest exchanges by volume, including OKEx, Huobi Global, LBank, HitBTC and Coineal.
In other words, American citizens have a significantly reduced ability to access cryptocurrency, and according to many of the exchanges that have decided to restrict their services for U.S. users, this puts the American cryptocurrency industry at a disadvantage compared to other national crypto sectors. Gus Coldebella, the chief legal officer at Circle, which owns Poloniex, told Cointelegraph:
"There’s no question that the current regulatory approach to crypto in the U.S. breeds uncertainty and could harm innovation. We have advocated for a clear, forward-looking regulatory framework so the U.S. can realize the full potential of crypto and blockchain technologies. That advocacy will continue and will ramp up, especially now that Facebook’s Libra is causing many to reckon with crypto for the first time."
Other exchanges agree that, currently, the U.S. regulatory regime is not only too restrictive for cryptocurrency platforms, but also too ambiguous. This is essentially what Bancor declared in the press release announcing its decision to stop serving U.S. customers, even i