- “Intelligent” US traders circumvent regulations, crypto exchanges require a smarter way to deal with such situations
- Prominent crypto exchanges have started to exit the US market due to unfavourable Crypto regulations
- Standardized regulations in the US are the only hope for crypto exchanges to serve the US traders
The global influence of the American financial market has always allured innovators and businesses all around the globe. Due to this reason, it is only natural that America is one of the top destinations for businesses working in the space of cryptocurrencies.
With a plethora of financial opportunities, the United States seem to be the perfect host for businesses in the crypto space but these businesses are often faced with disappointment when they move from assumption to implementation, especially for the cryptocurrency exchanges and trading platforms.
A prominent reason for this disappointment is the unfavourable crypto regulations in the United States. Despite the potential benefits, many prominent exchange operators have kept their distance from the US traders over the past few years. But, any business operating in the crypto space cannot escape the fact that the US traders can help them reach the very pinnacle of their success which is why they explore different ways to enter the US market in a compliant way.
Challenges Faced by Crypto Exchanges in the U.S.
For instance, the world’s largest crypto exchange by volume, Binance, stopped serving the US traders in September of 2019 due to the risks associated with US regulations. Later, Binance reiterated to the US markets but in a different way.
Rather than establishing their own business in the states, Binance launched a separate entity called Binance.US which is a result of the partnership between Binance and BAM Trading Services.
As the BAM Trading Services is approved by the Financial Crimes Enforcement Network to serve American customers, this allows Binance to serve the US traders in a compliant manner. The branding support for Binance.US is provided by the Malta-based exchange and the technology that it leverages is licensed from Binance.
But the challenges for the crypto exchanges do not end here. Beyond the regulatory risks, the crypto exchanges face a true dilemma when they face the US traders.
Even if the exchanges restrict the access of the US traders, some US traders circumvent regulations and access the global exchange. The recent statement by the Binance CEO, Changpeng Zhao, is proof of this circumvention. In an interview with Bloomberg, Changpeng Zhao said that his exchange needs to be smarter about the way it blocks “Intelligent” US traders. He told in the interview that:
“Basically, we do continually try to improve our blocking. There are sometimes a few guys who want to circumvent our blocking and still use the platform and we have to come up with a smarter way to protect that and when we do, we block them.”
This brings us to the fact that many crypto exchanges find it difficult to operate in the States due to the inconsistent regulations related to digital assets.
A perfect example of this is the civil enforcement action against the derivative exchange, BitMEX. This action was filed by the Commodity Futures Trading Commission (CFTC) due to the reason that BitMEX was operating an unregistered brokerage. To make matters worse for BitMEX, the executive team of the exchange is facing the possibility of criminal punishment by the Justice Department due to the facilitation of money laundering by the exchange.
Should Crypto Exchanges Give Up On U.S. Traders?
Absolutely not. As stated appropriately by Marc Bhargava, President of Tagomi, US traders and the US market is a significant platform for large funds, index products, venture capitalists and family offices. Bhargava further stated in an interview that:
“I think the key is to map out a regulatory strategy early and plan for significant spend there in terms of hiring the right people and for the various applications and filings. One thing that would make the US more regulatory friendly would be an increased standardization of rules and regulations across the different states.”
Another interesting perspective was shared by Daniel P. Simon, the CEO and co-founder of Vested, an integrated communications firm. Daniel stated that:
“Crypto may be a global phenomenon but no country can compete with the liquidity and demand from the U.S. market. There’s no doubt investors are keen to get into this space, but the digital currency industry still has a lot of growing up to do before these folks feel comfortable jumping in.”
No matter how important the US market is, the inconsistent regulations and the US traders circumventing the regulations have forced many crypto exchanges to quit the American financial market.
The hope of the crypto exchanges relies on the future of crypto regulations in the States. Once the crypto industry has matured in the United States, crypto exchanges may reap the benefit of serving the US traders once again.