Who Does the Binance Action Affect?

As of February 8, 2023 Binance suspended dollar deposits and withdrawals for its international customers. This action came a month after Signature Bank, Binance’s banking partner, raised minimums for dollar transfer transactions. The immediate result of Binance’s action was for millions of dollars in crypto to exit Binance. At 0.01%, this is a tiny portion of Binance’s business. This action does not affect Binance US which is the part of the company regulated by the Financial Crimes Enforcement Unit of the Treasury Department. Rather it only applies to foreign customers who make dollar transfers in and out of banks.

Immediate Reaction to Binance Foreign Dollar Transfer Suspension

The first thing that happened after Binance announced its action was that Binance customers started pulling assets from Binance crypto wallets. Especially affected were accounts with tether, USDC, and other stablecoins. People did not appear to cash out of crypto but rather transfer assets to other crypto exchanges or their private wallets. About $172 million went out the first day according to DefiLlama. This comes to less than half a percent of assets held by Binance. In January Binance had its best month since before crypto winter set in with a 38% gain in value.

Why Did Binance Suspend Dollar Transfer from Foreign Customers?

Binance gave no reason for their actions but said that the issue would be fixed. The sorts of concerns that a company might have include problems with due diligence regarding their customers. Coinbase was the most recent example of a crypto exchange having to pay fines for not properly vetting their customers. In a world where Russians may be using cryptocurrencies to bypass sanctions this could be the sort of issue that Binance is concerned about. Crypto regulation has picked up significantly as larger and larger crypto exchanges have gone under and taken investor assets with them. It may simply be a matter of due diligence and good business practice that has caused Binance to do this.

How Safe Are Crypto Assets?

There are two basic issues with the value of crypto assets. The first is the general risk of losing money because of theft, fraud, or ill-advised business practices. The other is market risk. There has always been the risk of having your crypto exchange hacked, money being stolen from your crypto wallet, or forgetting one’s private and public keys. What has become apparent this last year is that a great many crypto businesses routinely have based their business plans on the assumption that crypto will keep going up forever. This fallacy by itself has caused the demise of many crypto businesses and the loss of investors’ assets over the last year or more.

As crypto winter turned into a crypto ice age folks like FTX engaged in questionable business practices in order to stay afloat. These folks are paying the price and their customers and investors are licking their wounds.

The other issue is the market. Crypto prices are down and will likely stay down along with stocks so long as the Fed is raising interest rates and there is a looming risk of a recession. Although Bitcoin and the rest routinely go up and down in tandem with the Nasdaq market, whenever there is another debacle in the crypto world, crypto takes another hit. A serious problem in crypto trading is Bitcoin wash trading. As regulation takes hold, we expect wash trading in Bitcoin exchanges to be made illegal like it is in the stock market. This will, in all likelihood, have a significant dampening effect on fluctuations in Bitcoin trading and in the huge peaks and valleys that characterized the market and attracted so many traders and investors. All other risks aside, this may be where the next downward plateau of Bitcoin will be.

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