Feb 17, 2023

Binance Temporarily Suspends USD Bank Transfers

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Binance, the world’s leading crypto exchange, recently announced that it will be temporarily suspending bank transfers in U.S. dollars. In a tweet on Feb. 6, the exchange stated that no other trading methods would be affected. This announcement came with no explanation, however, CEO Changpeng Zhao noted that only 0.01% of the exchange’s total users will be affected while they work to resolve the issue.

This news follows a related financial issue in the U.S., where Signature Bank, Binance’s SWIFT transfer partner, declared that as of Feb. 1, it would only accept trades from clients with U.S. dollar bank accounts over $100,000. This came after the bank announced plans to sell up to $10 billion in crypto deposits in December to reduce its exposure to the turbulent market changes.

In response, Binance stated that it was looking for a new SWIFT partner and that all SWIFT trades involving other currencies, as well as trading in U.S. dollars via credit or debit cards, would continue to be accepted. A spokesperson for the exchange further commented that they have contacted affected users directly and are actively working to find an alternative solution for SWIFT bank transfers.

Data from Nansen showed notable stablecoin movements, including Jump withdrawing $160 million in stablecoins and Oapital, a digital asset investment firm, withdrawing $230 million. Andrew Thurman, head of content at Nansen, noted that while these withdrawals may be attributed to the banking announcement, the 24-hour inflows show that the situation is not close to panic.

Banks are generally hesitant to deal with digital assets due to the lack of uniform regulations governing the market. This has resulted in a total ban on a national regulatory level in many countries in the European Union. For banks, the most important thing is to remain part of the financial system, and if they feel that they could be cut off because they took too much risk, they will simply not take it to begin with.

Tony Petrov, chief legal officer at compliance-as-a-service provider Sumsub, believes the ongoing bear market is another reason behind the bank’s recent action. He noted that when the crypto market was skyrocketing, some banks were pushed into the open arms of crypto exchanges, but now they are rethinking their involvement and changing their policies.

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

Eddie Hui, chief operating officer at crypto exchange platform MetaComp, commented that exchanges can reduce their exposure to crypto and diversify their client base to mitigate risk. He added that, in the case of Silvergate, the restriction they imposed was on transactions below $100,000, and some exchanges may decide to bundle withdrawals to go through scheduled withdrawals using a third-party payment company.

The recent action of Binance’s USD banking partner has raised many eyebrows in the crypto community, and experts believe uniform regulations are a must to build trust back. Until then, exchanges will have to mitigate the hurdles and risks on their own.