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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 if it didn’t highlight any particular regulation or aspect of American regulation that was ambiguous:

“In light of increased regulatory uncertainty, we believe that restricting U.S.-based users from executing conversions via our web interface is the most judicious decision for all members of Bancor’s ecosystem at this time.”

Crypto in the U.S.

On the other hand, some exchanges argue that the regulatory situation isn’t that disadvantageous for the U.S. crypto industry, and that the picture is more mixed and nuanced than some protestors would have you believe. For example, Precious Kenneth W. — the CEO of decentralized exchange Dexage — told Cointelegraph that, even if American retail customers have been negatively impacted by U.S. regulations, institutional actors and investors have had more power to circumvent restrictions. She explained:

“Yes, in the sense that the vast majority of U.S. citizens have been affected, but the case is not so much the same with established companies with deep access to investors funds. These companies with the capacity to tap a liquid market may be able to bypass the restrictions placed locally with offshore investments.”

Kenneth W. also doesn’t entirely agree with the notion that U.S. lawmakers and regulators have been too slow to come through with updates to existing laws, or with entirely new laws or guidelines, not least because the industry is still very young. She continued:

“Blockchain laws & regulations will evolve in line with a jurisdiction legal framework, there is no uniformity or one-size-fits-all standard or approach. I wouldn’t say they have been slow: the blockchain & crypto space is still evolving and the trajectory with technological innovation and regulation is that the former happens and the latter steps in.”

However, when it comes to the matter of token sales, Kenneth W. concurs that current regulations are unclear, and that cryptocurrency startups and companies are avoiding the U.S. as a result, saying that “in the current situation, most ICOs are avoiding the U.S. basically because of what they see as either ‘overregulation’ or because they want to avoid the legal issues that may arise due to the erratic nature of cryptos.”

It’s arguable that the exchanges that have been pulling out of the U.S. have also been trying to avoid such legal issues, and that some may in fact be unwilling to satisfy regulations that have been created in order to protect consumers. But while this might be a valid argument for a minority of platforms, it’s undermined by the fact that Binance is in the midst of setting up a fully compliant U.S.-dedicated exchange, while a number of other companies — such as eToro, Liquid and Riot Blockchain — have recently launched or are in the process of launching U.S.-focused platforms. This argument has also been denied by Circle’s Gus Coldebella, who stated that Poloniex, at least, wasn’t seeking “lax” treatment in restricting its American service. Coldebella said:

“We can’t speak for other companies, but we would put our compliance with laws, our seriousness about safety and security of customer assets, our respect for licensing authorities, and our commitment to compliance up against anyone else in the space. So our desire is not for lax laws — it’s for smart ones.”

Unsurprisingly, Poloniex and Circle believe that U.S. lawmakers have been too slow in acting, and, more importantly, in realizing that the cryptocurrency industry does indeed require its own specific legislation rather than simple incorporation within existing laws. “We’re on record talking about the need for laws to treat crypto differently, rather than understanding it through the nearly century-old securities framework, and only Congress may make that change in the U.S.,” Coldebella added.

Future laws

Even though this paints a fairly bleak picture of the present regulatory climate, the industry is generally hopeful that the situation will sooner or later change. And as Coldebella explained, there are already signs that this change is being set in motion: “Some U.S. lawmakers are tuned in to the opportunity in this space: for example, bipartisan legislation such as the Token Taxonomy Act would provide much-needed clarity, and some other members of Congress are considering other creative approaches.”

Aside from the Token Taxonomy Act, a number of other potentially positive bills are currently being considered in the U.S. Congress, as detailed by the nonprofit Coin Center. These include the Blockchain Promotion Act, as well as the U.S. Virtual Currency Market and Regulatory Competitiveness Act, the latter of which has been drafted to “promote United States competitiveness in the evolving global virtual currency marketplace.” So, assuming that the Token Taxonomy Act — which seeks exemption for digital assets from the Securities Act — and other similar bills are passed, this could create a regulatory framework in which more exchanges are encouraged to return to the U.S., or to set up operations for the first time in the country.

However, as things stand, it seems that at least as many exchanges are abandoning U.S. customers as are embracing them, as highlighted by the cases of Bancor, Bittrex, Poloniex, Bitfinex, Binance (to an extent) and others. This is potentially good news for any country or region that wants to become the world’s crypto capital, but it’s potentially bad news for the American crypto industry overall.

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Hodler’s Digest, June 10–16: Top Stories, Price Movements, Quotes and FUD of the Week Top Stories This Week

Bitcoin is reportedly producing as much carbon emissions as Kansas City, while Facebook gets some new backers for its crypto project.

CCN casts doubt on shutdown plans as Google appears to correct visibility

Cryptocurrency news outlet CCN (formerly CryptoCoinsNews) is apparently not going through with its total shutdown, as reported earlier this week. The outlet had previously posted a note that a recent Google Core Update had led to a more than 70% visibility drop on mobile overnight, leading the organization to decide to shut down rather than downsize. However, an update this week from CCN Markets Director Jonas Borchgrevink notes that, for an unexplained reason, the crypto outlet’s old domain name, CryptoCoinNews, has been showing up with new 2019 articles on Google, leading the team to decide to keep working. Theories about the visibility drop, which affected other news outlets, have ranged from it being a block of clickbait titles or a ban on conservative outlets by an allegedly “liberal” Google.

U.S. residents will lose access to many altcoins on Binance starting in September

United States residents who use major crypto exchange Binance will lose trading option access for many cryptocurrencies when the exchange puts into action its updated terms of service this September. As reported this week, Binance updated its terms of service to include trading on the platform for U.S. residents, a change that comes shortly after its announcement of a U.S.-exclusive fiat-to-crypto exchange. According to a table created by CryptoPotato, there are a number of cryptos that will no longer have a trading outlet in the U.S., as well as several tokens that will be listed on only one exchange after Binance closes for U.S. residents. However, veteran cryptocurrencies — including XRP, DASH, XLM, ETC and ZRX — will still be listed on four or more other U.S. exchanges.

Sale of Telegram’s token “gram” on exchange Liquid is not official: Source

The announcement this week from crypto exchange platform Liquid that it would be offering encrypted messenger Telegram’s token, gram, in a sale is not officially connected with Telegram, according to a source close to the messaging app. As Cointelegraph had reported earlier this week, Liquid had said that it would be the representative of gram tokens for Gram Asia, which it called the largest holder of the token in Asia. However, in comments to Cointelegraph, a source close to Telegram noted that it was the first time that it had heard of Gram Asia. In separate comments, an investor in Telegram’s token told Cointelegraph that no one has rights to sell the tokens before its official launch. Liquid CEO Mike Kayamori told Cointelegraph that the public sale is the result of an exclusive agreement between Liquid and Gram Asia, without the direct involvement of Telegram.

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Bitcoin generates more carbon emissions than some countries, study warns

According to a new report published in the journal Joule, the carbon emissions generated by bitcoin (BTC) are comparable to the whole of Kansas City. According to Christian Stoll, one of the project’s researchers, the energy consumption used in mining the largest cryptocurrency is only growing, noting that the computing power needed to solve a BTC puzzle has more than quadrupled since last year. The study was based on data from IPO filings and IP addresses of some of the largest mining companies, finding that bitcoin is placed around Jordan and Sri Lanka — in international terms — due to its annual emissions of CO2, estimated to be between 22 and 22.9 megatons.

Report: Facebook secures support from dozens of new firms for its crypto project

According to a report from The Block, Facebook has reportedly secured support from dozens of players in the cryptocurrency and blockchain sector for its upcoming, secretive digital currency. The Wall Street Journal had reported earlier this week that Facebook had allegedly received the backing of $10 million each from firms — including Visa, Mastercard, PayPal and Uber — for the project, dubbed “Libra.” The Block cited further materials, noting that the project’s investors also include venture capital firms Andreessen Horowitz and Union Square Ventures, cryptocurrency exchange Coinbase and nonprofit organizations including Mercy Corps. According to a source speaking to The Block, the company aims to gather 100 members in the governing consortium, with a total planned for $1 billion, including all participants.

Winners and Losers

The crypto markets have seen a slight uptick at the beginning of the week, with bitcoin trading at $9,054, ether at $269.54 and XRP at $.41. Total market cap is at $281 billion.

The top three altcoin gainers of the week are acre, commerce data connection and renos. The top three altcoin losers of the week are tronclassic, segwit2x and hypnoxys.

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For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

Most Memorable Quotations

“Some short term pains may be necessary for long term gains. And we always work hard to turn every short term pain into a long term gain.”

CZ, Binance CEO

“If Google thinks that CCN, all of a sudden — remember, literally overnight — is bad, then why not give us the chance to understand the why and give us a way to change before any major update. Instead, we are kicked in the teeth overnight with zero knowledge of what we have done wrong, impacting a team of 60+ people.”

Jonas Borchgrevink, director and founder of CCN Markets and Hawkfish AS

“Millennials don’t carry cash, they date on apps and watch on-demand entertainment. We have to be there, we have to learn from successful tech companies, and we have to provide a universal solution that makes it easy for younger generations to engage with the Church.”

Rick Santorum, former United States senator

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FUD of the Week

Blockchain developer Dispatch Labs suffers losses, despite market recovery

Dispatch Labs, a blockchain company, is currently incurring large losses, despite extensive investment and a recovering cryptocurrency market. The blockchain firm had raised over $13 million in a series of private rounds in 2018, with investors including China-based capital firm Fenbushi Capital. Dispatch Labs’ total remaining investment has since dropped to around $6.5 million, with CEO Matt McGraw reporting noting that the company did not have sufficient over-the-counter availability to liquidate digital currency that could have staved off the threat driven by the market downturn. However, McGraw added that the company has enough working capital to last through the year, taking into consideration the tentative market recovery.

Trend Micro: Cybercriminals use obfuscation trick to install crypto mining malware

Cybersecurity firm Trend Micro confirmed this week that attackers have been exploiting a vulnerability in the Oracle WebLogic server to install monero (XMR) mining malware. The malware uses certificate files as an obfuscation trick to carry out cryptojacking, a process wherein malware uses a computer’s operating processing power to mine for cryptos without the owner’s consent or knowledge. According to Trend Micro, a security patch for the Oracle WebLogic vulnerability had been released in the national vulnerability database earlier this spring. The report also includes a recommendation for firms using that server to update their software to the latest version with the security patch in order to mitigate the risk of cryptojacking.

Crypto exchange Bittrex to block U.S. users from trading in 32 cryptos

Cryptocurrency exchange Bittrex said this week that it would block its U.S.-based users from trading in 30 cryptocurrencies. According to the announcement, after June 21, American traders will be unable to access a list of coins traded on the exchange, including QTUM and STORJ. Bittrex noted that U.S. users will receive an email with explanations behind what they are and are not allowed to do with the aforementioned assets, included selling them for assets that will stay available to them, canceling orders and moving them off the exchange. Once the ban comes into effect, U.S. users will not be able to buy or sell the select coins, and all open orders involving those coins will be cancelled. However, the coins will be transitioned to the Bittrex International platform.

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Best Cointelegraph Features

Safe space: A guide to special economic zones for crypto, from China to Switzerland

Cointelegraph takes a look at the types of special economic zones for cryptocurrencies around the world: to some Russian spaces, which seemed to have paused development, to Switzerland’s Crypto Valley, which is not technically a special economic zone, despite its name.

Exclusive: New report reveals details of Telegram’s TON blockchain

Instant messaging service Telegram and its Telegram Open Network (TON) blockchain have been surrounded in relative secrecy since the project raised $1.7 billion last year. With an exclusive report published on Cointelegraph about the TON blockchain, this analysis goes through the newly revealed TON services in more technical detail for our readers.

“CoinLab is a big stopping block”: Mark Karpeles talks Mt. Gox creditor claims and life after trial

Cointelegraph speaks with Mark Karpeles, former CEO of the now-defunct Mt. Gox, about what’s going on with the much elongated creditor process as well as debunking some of the media rumors around his not-new role at Tristan Technologies.

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Crypto Exchange Bittrex Delists 40+ Altcoins for US Clients: Regulatory Pressure

Crypto Assets Delisted En-Masse on US Exchanges

As Bitcoin (BTC) has returned, regulatory pressure on crypto assets and their respective industries have begun to rapidly mount. We may be just six months from BTC’s $3,200 bottom, but governments across the globe are already preparing for the next bull run.

Last week, Bittrex, a well-known regulated crypto exchange centered around altcoins, revealed that it would soon be disallowing users in the United States from trading 32 cryptocurrencies. Although most assets that were mentioned are not well-known, the list includes QTUM, STORM, GO, and ENG — all popular ICOs during 2017 and 2018’s mania. By June 21st, the coins mentioned will not be available to be bought or sold through Bittrex, but through Bittrex International instead — the firm’s Europe-based venture that is focused on its non-American clientele.

And today (Friday), the Seattle-based startup continued to delist altcoins en-masse. In the firm’s latest blog post, it revealed the delisting of 42 cryptocurrencies, including Civic (CVC), OmiseGo (OMG), and Sirin Labs‘ crypto token (SRN). By June 28th, the assets mentioned in the list will be delisted on Bittrex for U.S. clients.

This recent move comes just a week or two after Poloniex, Circle’s fully-fledged cryptocurrency exchange play, made a near-identical move, but for a load of different assets. Poloniex blocked the markets for Ardor (ARDR), Bytecoin (BCN), Decred (DCR), Gamecredits (GAME), Neo’s GAS, Lisk (LSK), NXT, OMNI, and Augur’s REP for its American clients.

Tumultous Regulatory Scene

These cases of so-called “geo-blocking” or “geo-fencing”, while not a likely result of direct government oversight, goes to show that the regulatory scene for cryptocurrency in the United States is getting worse. In fact, when Poloniex revealed that it would be delisting the aforementioned coins for its U.S. market, the Goldman Sachs-backed firm wrote:

“Today’s action is a result of regulatory uncertainty in the US market. Specifically, it is not possible to be certain whether US regulators will consider these assets to be securities.”

Indeed, the United States Securities and Exchange Commission (SEC) has been slow to act or not act on what it deems securities. The only recent case involving the entity and crypto is the one involving Kik, the Canadian social media firm behind popular $100 million ICO KIN.

The SEC argues that the Canadian firm was running an unregistered securities offering under U.S. federal law. It was even implied that KIN was a ploy to “make a ton of money”, with regulators citing the fact that Kik’s social platform “has never been profitable” and had no intentions to become monetized in any notable fashion.

With some fearing a crackdown on other assets like KIN, the delisting of any asset, especially ones with minimal liquidity, that may be deemed a security is likely a wise move for exchanges based in America.

Photo by Kelli Dougal on Unsplash

The post Crypto Exchange Bittrex Delists 40+ Altcoins for US Clients: Regulatory Pressure appeared first on Ethereum World News.

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Bittrex to Expand to Euro Markets, Lowers Trading Fees for US Customers

Cryptocurrency exchange Bittrex has lowered trading fees for United States customers and announced its expansion to euro markets.

Cryptocurrency exchange Bittrex has lowered trading fees for United States-based customers and announced its expansion to euro markets in a blog post published on June 12.

The exchange announced the launch of euro markets later this summer, which will enable fiat trading in euros for the first time in its history.

Bittrex is also offering lower trading fees for its U.S. dollar markets, starting with a promotional month with 0 maker and 0.15% taker options. The exchange also notes that it will automatically lower fees to the promotional rate for qualifying accounts that have generated not less than $30,000 in trading volume since joining Bittrex or Bittrex International.

The development follows Bittrex’ decision earlier this month to block its U.S.-based users from trading in 32 cryptocurrencies starting from June 21. After the change comes into effect, U.S. customers will not be able to buy or sell the select coins, and open orders involving the assets will be canceled.

In January, Bittrex announced plans to launch an over-the-counter (OTC) trading desk. “This offering will be another way for Bittrex to further advance adoption of blockchain technology worldwide, while also providing our customers with price certainty and a fast and easy way to trade large blocks of digital assets,” the exchange’s CEO Bill Shihara said.

Founded back in 2013, Bittrex is currently ranked 58th in terms of adjusted trade volume, according to CoinMarketCap. The exchange’s daily trading volume is around $81 million at press time, with 347 cryptocurrency markets available.

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Standard Tokenization Protocol Raises $750K in Eight-Second Token Sale

The initial exchange offering comes weeks after Standard Tokenization Protocol raised $7 million in two private funding rounds.

A token sale for Standard Tokenization Protocol (STP) raised $750,000 and sold out within eight seconds, a news release claimed on June 11.

The project says it offers an open-source, decentralized standard for the tokenization and issuance of any asset.

Following the initial exchange offering (IEO), which was held on Bittrex, STP founder Mike Chen said:

“We are excited to move forward with implementing a powerful funding mechanism for other companies that could potentially save billions in funding costs while staying fully compliant in any jurisdiction.”

As well as being collected as fees and used for gas to help pay compliance validators, STP says its tokens can be staked and “fuel an incentivized governance model that keeps validators efficient and honest.”

A total of 75 million STPT tokens were sold during the IEO. As reported by Cointelegraph last month, Standard Tokenization Protocol earlier raised $7 million through two private rounds led by prominent venture capitalists.

Also in May, rival company Tokenized launched a protocol enabling businesses to create tokens for real-world assets including shares, admission tickets and memberships on the Bitcoin SV (BSV) blockchain.

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Crypto Exchange Bittrex to Block US Users From Trading in 32 Cryptos

Cryptocurrency exchange Bittrex announced that it will block United States-based users from trading in 32 cryptocurrencies.

Cryptocurrency exchange Bittrex announced that it will block its United States-based users from trading in 32 cryptocurrencies. The exchange revealed the news in a post on its blog on June 7.

Per the announcement, after June 21, U.S. traders won’t be able to access a slew of coins listed on the exchange, including QTUM and STORJ.

The exchange noted that U.S. users will receive an email with explanations concerning what they are and are not allowed to do with the aforementioned assets. The options cited by the exchange include selling them for assets that will stay available to them, canceling orders and moving them off the exchange.

After the change comes into effect, U.S. customers won’t be able to buy or sell the select coins, while all open orders involving said assets will be canceled. Some limited functionality concerning the assets will still be available to U.S. traders and the coins will be transitioned to the Bittrex International platform:

“U.S. Customers may withdraw or continue to hold in their Bittrex wallet affected Tokens/Coins for as long as Bittrex International supports a market in those Tokens/Coins.“

Bittrex International is Bittrex’s Europe-based affiliate, which lists certain tokens that are only available on the Bittrex International platform — not to U.S. users.

As Cointelegraph reported in mid-March, Bittrex canceled its first Initial Exchange Offering, which it had been planning to host on Bittrex International.

As reported last week, the decentralized exchange developed by top cryptocurrency exchange Binance will block website access to users based in 29 countries, including the U.S.

As Cointelegraph reported this week, bitcoin (BTC) trading volumes on major cryptocurrency exchange Coinbase recently hit a high of 263,000 BTC on May 12, a volume that has not been seen since February 4, 2018.

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What Crypto Exchanges Do to Comply With KYC, AML and CFT Regulations

Top fiat-to-crypto exchanges are adopting market surveillance technologies. Of all crypto-to-crypto exchanges, only Binance has one.

While it’s possible to buy top cryptocurrencies like bitcoin (BTC) and ether (ETH) in the over-the-counter (OTC) market, most people will need an exchange in order to buy other altcoins. Exchanges are simply an important component of the system that makes the crypto market tick. Regulators around the world have identified this, which is why regulatory moves have primarily targeted exchanges. Regulators want to be sure that exchanges employ the best security practices as well as measures — Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT), for instance — that discourage illicit transactions and improve account/wallet security.

Some exchanges do take their compliance to those measures seriously. For example, in the aftermath of the Binance hack on May 7, when around 7,074 bitcoins (worth $40 million on the day) were stolen, the company’s founder and CEO, Changpeng Zhao, announced that a significant security update will be conducted that will also include an upgrade to the KYC measures:

“We are making significant changes to the API, 2FA, and withdrawal validation areas, which was an area exploited by hackers during this incident. We are improving our risk management, user behavior analysis, and KYC procedures.”

So, let’s break down if such a stance over compliance with measures like KYC, AML and CFT is common among top cryptocurrency exchanges, and how much of an effect they have on the market and its participants.

What are KYC, AML and CFT

Each country has its laws governing KYC, AML and CFT measures. However, these laws do not come with specific standards, mainly because regulators want financial institutions to do all they can to reduce risks.

“The reasoning seems to be that if banks get clear guidelines on what constitutes adequate KYC they will never look any further than the minimum requirements,” John Callahan, chief technology officer at Veridium, an identity and access management software company, wrote in Forbes.

Know Your Customer

Know Your Customer, refers to a set of procedures and process that a company employs to confirm the identity of its user or customer. The robustness of KYC procedures varies across companies and jurisdictions. However, KYC fundamentally involves the collection and verification of a customer’s means of identification — including government-issued identity cards, phone numbers, a physical address, an email address and a utility bill, to name a few.

Anti-Money Laundering

Anti-Money Laundering measures are a set of procedures, laws and regulations created to end income generation practices through illegal activities. Some of them include tax evasion, market manipulation, public fund misappropriation, trade of illicit goods and other activities of this kind.

AML regulations require financial institutions to continuously conduct due-diligence procedures to detect and prevent malicious activities.

Anti-Money Laundering

The crypto industry has already been cited as facilitating a “rise of a new, high-tech era of virtual money laundering,” with cryptocurrency gambling sites reported by blockchain research house CipherTrace as being a common money laundering tool. In addition, Jamal El-Hindi, the former acting director of the Financial Crimes Enforcement Commission (FinCEN), a part of the United States Department of Treasury, hinted that AML compliance will be fundamental to the stability of crypto exchanges in the coming years:

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate US AML laws.”

Combating the Financing of Terrorism (CFT)

Combating the Financing of Terrorism refers to the set of procedures aimed at investigating, dissecting, discouraging and blocking sources of funding intended for activities that realize religious, ideological or political goals through violence, or its threat thereof, against civilians. These procedures provide law enforcement agencies with an alternative, and potentially effective way to track and block terrorist activities.

Yaya Fanusie, the director of analysis for the U.S. Foundation for Defense of Democracies Center (FDD), earlier in September 2018, told the U.S. Congress that terrorist organizations aren’t using cryptocurrency as a funding vehicle. However, the U.S. House of Representatives, on Sept. 26, passed a bill that would establish a task force to fight the use of cryptocurrencies by terrorist groups.

How crypto exchanges approach KYC, AML and CFT compliance

As stated earlier, the process of regulatory compliance for AML and CFT involves KYC throughout transaction lifecycles. The KYC process is generally divided into four levels, namely:

  • Customer acceptance policy (CAP), which is the stage where a company determines and documents the demographics of its desired customers.
  • Customer identification program (CIP), which is the stage where the company confirms that the identity of a (potential) customer matches its CAP.
  • Continuous monitoring of transactions to ensure regulatory compliance, identification of suspicious activities and risk management.
  • Risk management

Based on the information available, it can be examined how exchanges handle these stages. Crypto exchanges will be divided into two groups namely the “fiat-to-crypto” exchanges and “crypto-to-crypto” exchanges. Fiat-to-crypto exchanges are the gates for new fiat money to enter the cryptocurrency market. These exchanges allow users to exchange fiat currencies like dollars for bitcoin, ether or any other supported cryptocurrency. Crypto-to-crypto exchanges, on the other hand, primarily allow users to exchange one cryptocurrency for another.

Fiat-to-crypto exchanges

A few top fiat-to-crypto exchanges include Coinbase, Coinbase Pro, Gemini, Bittrex, Kraken, Bitfinex and Bitstamp.

Fiat-to-crypto exchanges

Fiat-to-crypto exchanges typically perform at least some level of KYC because they deal with fiat money. This forces them to conduct business with banks and other traditional financial institutions, most of whom conduct KYC procedures before doing business with any entities.


Coinbase is a licenced crypto exchange based in the U.S. A full list of the licenses it holds is here. All that the exchange requires to open an account is a full name, an email address and a password. While this means that anyone from anywhere in the world can store, send and receive cryptocurrencies using a basic Coinbase account, ID verification is required to buy and sell cryptocurrency in the 33 countries it supports.

For its KYC, Coinbase chose Jumio’s digital identity solution Netverify in an attempt to be regulatory compliant while still delivering a smooth customer experience. In a bid to further mollify regulators, the company hired former New York Stock Exchange executive Peter Elkins to build the Coinbase Trade Surveillance Program, an initiative to monitor the markets with the aim to weed out bad actors.


Also licensed by the U.S. government, Gemini, unlike Coinbase, conducts KYC before allowing anyone to use its platform. On its user agreement page, Gemini states at least 13 regulations — including FinCEN, AML and CTF regulations — to which the users of its platform must be compliant. The exchange was launched in 2014 by brothers Cameron and Tyler Winklevoss.
At the start of the second quarter of 2018, a few months before Coinbase’s trade surveillance reports surfaced, Gemini partnered with U.S.-based stock exchange Nasdaq, which is one of the two largest exchanges in the world, for the deployment of Nasdaq’s SMARTS Market Surveillance technology to track market manipulations and fraudulent trades. The surveillance moves from both Gemini and Coinbase put them in the third stage of the KYC process.


Bitstamp requires ID and address verification before users can start trading on the platform. In the wake of surged interest in bitcoin, the exchange partnered with Onfido in February 2018, a digital identity verification provider, to handle its KYC to the end in order to make the customer onboarding process frictionless. Bitstamp was originally founded in Slovenia in 2011, but moved to the United Kingdom in 2013, and then to Luxembourg in 2016.

On Nov. 5, Bitstamp chose Cinnober’s crypto trading system for its exchange. Cinnober claims that its trading solution is built for regulatory compliance. The solution also employs Irisium’s market surveillance technology for risk management. Cinnober boasts a list of customers, including the NYSE, the London Stock Exchange, Euronext, and the Johannesburg Stock Exchange, to name a few.


Developed by fintech company iFinex, Bitfinex allows crypto users to open an account and immediately deposit, trade and withdraw crypto without identity verification. However, verification of a phone number, a residential address, two forms of government-issued ID and a bank statement is required to deposit and trade fiat currencies.

Earlier in the year, Bitfinex employed Irisium’s market surveillance technology to detect fraudulent behavior on its exchange. Bitfinex is based in Hong Kong.


Bittrex requires ID verification before allowing users to deposit, trade or withdraw cryptocurrencies. However, other than having a user agreement page that says its operations comply with KYC, AML and CTF policies — as does every other exchange — it is unknown if the exchange employs a market surveillance technology or plans to do so.


Kraken launched following two years of product development and beta testing, making it one of the oldest crypto exchanges. It has five tiers of verification (tier 0 to 4) requirements, depending on users’ intent to use their account. Kraken founder Jesse Powell decided to build the exchange after seeing the struggles of the then-largest — but now defunct — crypto exchange Mt. Gox.


Unlike Gemini and Coinbase, Kraken doesn’t appear to have any publicized surveillance program. All that is known comes from a Kraken blog post that was issued in response to the New York attorney general’s questionnaire. The company said:

“We currently employ nearly 200 people (more than 25% of the company) in compliance-related functions. As of Q1 2018, we are processing more than 1 law enforcement request per day, seven days a week.”

At the end of the second quarter of this year, a Bloomberg report called out irregularities involving certain tether trades on the Kraken exchange. John Griffin, a professor of finance at the University of Texas, told Bloomberg that the irregularities noticed are “suggestive of wash trading.” This technique is sometimes employed by traders, who act as both seller and buyer in a given transaction, to give a false impression of supply and demand. This act in itself is illegal. Kraken discredited the content of the report in a blog post. “It’s not clear what harm could come from wash trading of a pegged asset against its peg,” Kraken wrote.

Crypto-to-crypto exchanges

Based on data from CoinMarketCap, top crypto-to-crypto exchanges include OKEx, Binance, Huobi, HitBTC, Bibox,, Coinbene and LBank.

Crypto-to-crypto exchanges


Binance, being a pure cryptocurrency exchange, isn’t as exposed to regulations. Therefore, it allows withdrawals of up to 2 BTC per day without any form of ID verification. For withdrawals up to 100 BTC per day, it requires photo ID verification.


OKEx, which partially allows fiat trades, has three levels of verification. Level 1 users have a transaction limit of $10,000 per order or $2,000 for fiat trades, and are required to provide a government-issued ID during verification. Its level 2 allows for trades over $10,000, and requires document verification. Level 3 is for trades above $200,000 and involves video verification.


HitBTC doesn’t perform any form of ID verification at account opening. Users can deposit and trade crypto without going through any KYC procedures. However, the exchange advises users to verify their identity by sending in the usual KYC documents, including bank documents, to its compliance department via email to “avoid eventual verification procedure in the future.” Users have taken to a number of social media channels to complain that HitBTC allegedly limited their accounts, with the exchange operator asking them to verify their identities.


Huobi doesn’t appear to require any KYC documents before allowing users to trade, but it does have an ID verification section in the settings area of a user’s account. It appears to only enforce KYC when users reach a certain account usage limit. In addition, Huobi has different withdrawal limits for verified and unverified users.


Bibox allows users to trade up to 2 BTC per day without any form of KYC verification. For trades up to 20 BTC per day, it requires a passport verification. On its website, Bibox advises users who want a higher limit to reach out to its support team via email. All that is required to deposit funds and start trading with Bibox are account security measures, including SMS and Google authentication.

Should crypto exchanges take KYC seriously?

Put simply, similar to fiat-to-crypto exchanges, the top crypto-to-crypto exchanges, as determined by their 30-day volume on CoinMarketCap, have some sort of KYC policy that they enforce at different stages. However, many of them haven’t been proactive about compliance.

“To gain respect and empathy from regulators, crypto exchanges need to be proactive about compliance,”  Tony Mackay, who recently launched the Kryptos-X exchange, said. He went on:

“At the minimum, you want to get the on-boarding stage right, even if the crypto market is currently under-regulated. You also want to ensure that your user registration system can detect and deter criminal activities, using the expertise of best-in-class KYC/AML providers.”

Also, unlike their fiat-to-crypto counterparts, crypto-to-crypto exchanges — except for Binance — haven’t been reported as monitoring or tracking transactions to detect market manipulation or fraudulent behaviors.

Should crypto exchanges take KYC seriously?

In October, Binance partnered with Chainalysis, a compliance and investigation company catering to the cryptocurrency space. As part of the partnership, Chainalysis did a global roll-out of its compliance solution, which has a Know Your Transaction (KYT) feature. KYT is a real-time transaction monitoring solution for cryptocurrencies. U.S. agencies — including the IRS and FBI — are using Chainalysis’ solution to track cryptocurrency transactions.

Is it worth playing by the rules?

A recent report from P.A.ID Strategies, a payments and identity security consulting firm, found that the majority of crypto exchanges “lack sufficient background checks.”

It also claims that exchanges, at best, take a reactive approach to being compliant. Only a few have set up a system for monitoring behaviors and appear prepared to deal with regulators despite the under-regulation of the industry.

A recent emerging trend in the crypto space has been that of exchanges closing their offices in highly regulated jurisdictions and setting up shop in jurisdictions — such as Malta — where the local laws are “crypto friendly.” Binance and OKEx are the most notable examples.

For some crypto firms compliance is a double-edged sword in that on one side, firms ensure that no illicit activity is conducted on their platforms, while potentially compromising on the notion of decentralization on the other side.

In June 2019, new Financial Action Task Force (FATF) guidelines will be imposed that govern AML and CFT activities. The announcement from February states:

“Countries should ensure that VASPs [virtual asset service providers] are subject to adequate regulation and supervision or monitoring for AML/CFT and are effectively implementing the relevant FATF Recommendations, to mitigate money laundering and terrorist financing risks emerging from virtual assets. VASPs should be subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements.”

There are many who disagree with the tightening of controls, saying that, first of all, it would be difficult to set up domestic regulatory bodies, and in the meantime, companies may suffer as they will become overburden by reporting.

It is also not always possible to know the identity of the beneficiary, whom the destination wallet belongs to and what type of a wallet it is, according to Chainalysis. The company states that it would be more beneficial to collect wallet addresses of bad actors instead of user’s personal information.

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CoinMarketCap to Remove Exchanges From Calculations If They Don’t Provide Mandatory Data

Following controversy about fake volumes on CoinMarketCap, the service will require exchanges to provide mandatory API data.

Crypto market cap tracker CoinMarketCap (CMC) will remove exchanges from its calculations if they fail to provide mandatory data by June, the firm wrote in its sixth anniversary blog post on May 1.

CoinMarketCap, a major source of data about all traded digital currencies, has made a series of announcements to celebrate its sixth birthday today.

As such, CMC has announced a brand new alliance called the Data Accountability & Transparency Alliance (DATA) in order to provide “greater transparency, accountability, and disclosure from projects in the crypto space.”

A broad number of exchanges have already joined the new alliance, including Binance, Bittrex, OKEx, Huobi, Liquid, UpBit, IDEX, OceanEX,, KuCoin, HitBTC and Bitfinex, with more partners expected in the future, the announcement states.

As a part of its transparency initiative, CoinMarketCap will also now require all the crypto exchanges to provide mandatory API data that includes their live trading data and live order book data. Stressing that the condition will be mandatory, CMC wrote that any exchange that does not provide this mandatory data will be not be included in the price and adjusted volume calculations on the site.

The exchanges now have a 45-day grace period to send the required data, while changes will come into effect on June 14, 2019, CoinMarketCap noted.

Apart from the DATA alliance announcement, CMC also introduced new features such as CoinMarketCap Block Explorers, CoinMarketCap Shop, API Revised Plans and CoinMarketCap Mobile Apps.

The new announcement comes on the heels of the recently sparked controversy around CMC’s volume statistics. On March 20, crypto index fund provider Bitwise Asset Management released research claiming that 95% of the volume on unregulated exchanges is likely to be fake or non-economic in nature. Following the analysis, CMC officially announced plans to rearrange the rankings of member exchanges.

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Crypto Exchange Bittrex Denies Claim of North Korean Users on Its Platform

American cryptocurrency exchange Bittrex said that claims of North Korean users trading on its platform are false.

American cryptocurrency exchange Bittrex has said that claims of North Korean users trading on its platform are false in a tweet on April 22.

In the post, Bittrex stated that it had examined two accounts which allegedly belonged to users from North Korea, noting that it had investigated the same accounts back in October 2017. The exchange claims that South Korean residents mistakenly choose North Korea in the country dropdown menu.

Bittrex said that it determined where the users were from through country identification, and physical and IP addresses, concluding that “there are no users from North Korea trading on our platform.”

Earlier in April, Bittrex was denounced by the New York Department of Financial Services (NYDFS) for allegedly inadequate policies and controls regarding Anti-Money Laundering (AML), Know Your Customer (KYC) and Office of Foreign Assets Control (OFAC) standards. The NYDFS thus denied a BitLicense application from Bittrex.

According to NYDFS, it had issued multiple compliance letters to Bittrex “to address continued deficiencies and to assist Bittrex in developing appropriate controls and compliance programs commensurate with the evolving nature of the sector.”

Following the NYDFS’s denial, Bittrex released a response to the regulators decision, expressing its disappointment and arguing that the regulation “harms rather than protects New York customers.” The exchange also explained its disagreement with the NYDFS’ claims in regard to its AML and compliance practices.

At press time, Bittrex is ranked 58th on CoinMarketCap’s list of digital currency exchanges in terms of adjusted trading volume. Bittrex’s  24-hour trading volume is around $47.8 million at press time, having gained almost 8 percent over the past 24 hours.