Will US Investors No Longer be Able to Use Binance?

Will US Investors No Longer be Able to Use Binance?

As of September 12, 2019, US investors will no longer be able to deposit, or trade cryptocurrencies on the Binance exchange.

If you’re a US investor and already have cryptocurrencies on Binance, you will not lose access to your funds after September 12. You will still be able to withdraw your cryptocurrencies at any time.

Only trading and deposits will be disabled.

Binance’s Revised Terms of Use

On June 13, 2019, Binance announced an update to their terms of use. In the update, Binance stated that they would no longer be able to provide services to any U.S. persons.

“Binance is unable to provide services to any U.S. person. Binance maintains the right to select its markets and jurisdictions to operate and may restrict or deny the Services in certain countries at its discretion.” — Binance Terms of Use

Although the change to the terms of use has already been made, it will not be immediately enforced. A day 90 grace period is currently in effect. US investors will still be able to trade & deposit cryptocurrencies on Binance until September 12, 2019.

After 90 days, effective on 2019/09/12, users who are not in accordance with Binance’s Terms of Use will continue to have access to their wallets and funds, but will no longer be able to trade or deposit on Binance.com. —Binance Announcement

How will the Ban on US Investors be Enforced?

Binance has not specified how the ban on US investors will be enforced. But we can look to Binance’s decentralized exchange for clues.

Binance has already banned US investors from using their new, decentralized exchange. If your IP address is from a restricted country, the following pop-up appears.

Binance DEX banned countries geo-block

It’s pretty reasonable to assume that Binance will apply the same IP geo-block on their main exchange.

Can I Still Get Through a Geo-Block Using a VPN?

Yes. A VPN allows an internet user to mask their true IP address, and proxy it through another location in the world.

If you use a VPN to disguise your internet traffic, you will be able to bypass the geo-block. While Binance is not likely to penalize any investors from doing so, do keep in mind that using a VPN for such purposes would likely violate the terms of use.

You may not where you are a resident or national of a Prohibited Jurisdiction or a U.S. Person, access the Site or any Services using any virtual private network, proxy service, or any other third party service, network, or product with the intent of disguising your IP address or location —Binance DEX Terms of Use

Non-Verified Users Will Still Be Able to Trade on Binance

A simple VPN works because Binance does not require investors to verify their identity or residency. Non-verified investors are able to immediately deposit and trade.

Therefore a geo-block is likely the only restriction Binance would impose.

The only limitation is imposed on non-verified investors is that they are only able to withdraw 2 BTC (~$20K USD) on a given day. For retail investors, this is more than enough.

Will All Investors Require Verification In the Future?

It is very unlikely that Binance will force all investors to become verified in the future. The majority of Binance users are non-verified users. Taking that option away would cause a user experience nightmare. Binance would instantly lose up to half of its user base.

Enforcing KYC verification on a future-basis would make little sense in my eyes since there are already so many non-verified users. This policy would hardly shield Binance from any regulatory fallback.

Why is Binance Enforcing a US Investor Ban?

Historically Binance has fought back against regulators in the name of decentralization and deregulation. To avoid the ire of regulators, Binance has already moved their headquarters multiple times, first Hong Kong, to Japan, and finally to Malta.

So why are they now bending the knee?

The SEC is Scary and Will Come to Get You

SEC

The SEC has shown that they are willing to go after companies who operate outside of the US, as long as they are soliciting US investors.

Recent Examples:

  • EtherDelta (DEX) — EtherDelta is being charged by the SEC for operating an unregistered exchange. This proved that even “decentralized exchanges” are not safe from regulators.
  • Bitfinex — Bitfinex is facing legal action from the New York Attorney General, who is accusing Tether of misleading investors.
  • Kik — The SEC is suing Kik for issuing securities to non-accredited investors via an ICO without SEC approval.

SEC & Binance

Binance does not want to become the next target for the SEC.

As one of the world’s largest cryptocurrency exchanges by trading volume, Binance can hardly fly under the SEC’s radar. As long as Binance permisses US investors to use Binance, they are painting a huge target on their own back.

Binance traffic by country

The US is Binance’s single highest source of traffic by country.

A legal suit by the SEC, against Binance, would be catastrophic for the company as the proceedings would sour relations, incur costs, and place Binance at a disadvantage against competitors like Coinbase, who are operating in the US in a fully compliant way.

Binance vs. Coinbase

Binance’s Master Plan

Step 1 — Dominate Crypto-to-Crypto Trading

During Binance’s early years, regulation surrounding cryptocurrency was very ambiguous. No one could decide whether new coins were securities or an entirely different asset class.

During this time period, Binance made a strategic decision to focus on crypto-to-crypto trading. The main reasons for this were threefold:

  1. Keep themselves distanced from regulators since most of the regulatory attention was focused on fiat-to-cryptocurrency exchanges.
  2. Did not have to take fiat currency deposits and manage banking relationships.
  3. Could quickly grow altcoin listings during a period when altcoins were exploding in popularity.

Binance ran the risk of being labelled a regulatory pariah to build what would become the largest cryptocurrency-to-cryptocurrency exchange in the world.

During the Altcoin run and ICO bubble, many investors flooded to Binance to invest in coins they could not find on other exchanges. While many other exchanges had to close down registrations due to the sheer amount of trading volume and traffic coming from new users, Binance was one of the few exchanges welcomed new sign-ups with open arms.

Their infrastructure allowed them to pick up a huge swathe of new users while other exchanges struggled with uptime. Once investors got onto Binance, they stuck around for the amazing infrastructure, exciting new listings, and solid customer support.

Step 2— Dominate Fiat-to-Crypto Trading

In the long run, the majority of cryptocurrency investors will be ones that don’t own any cryptocurrency today. That means in order for an exchange like Binance to prosper, they need to control their own fiat-to-crypto gateways.

If they don’t, exchanges like Coinbase and Kraken will simply add new listings pairs and erode Binance’s main value proposition (liquidity & altcoin diversity). If that happens, investors will no need to go to exchanges like Binance.

Just recently, Binance announced they would open a fiat-to-crypto gateway in Singapore. It seems that countries with crypto-friendly regulatory bodies and citizens are up first.

But in order to win the global market, Binance has no choice but to eventually court countries whose regulatory bodies have higher standards, simply because the market in those countries is so big. For example, the US simply has too much investor capital, for Binance to ignore.

The Proposed Binance US Exchange

“Binance US will be led by our local partner BAM and will serve the U.S. market in full regulatory compliance.” — Changpeng Zhao CEO of Binance

Binance is planning to move US investors from Binance’s non-SEC compliant platform, to a regulatory-approved one.

So far, news sources have reported that Catherine Coley, former head of XRP institutional liquidity, has been hired to serve as Binance US’s CEO. Binance has also partnered with BAM trading services. The exchange will be operated by BAM, but will be using Binance’s wallet and matching engine technologies.

Little is known about BAM. To me, BAM trading seems little else than a shell company with the pre-existing licenses suitable for a cryptocurrency exchange. “Partnering” with a company that is already approved, is much easier and faster than applying for the same licenses yourself, especially if you have gobs of cash and a murky track record.

How Will this Effect the Market?

Exchanges are Converging

Every single exchange wants to be a single one-stop shop for cryptocurrency. Exchanges like Binance, who didn’t have fiat-to-cryptocurrency pairs, are now seeking to become more regulatory compliant so they don’t have to rely on other exchanges for fiat onramps.

Fiat-to-cryptocurrency exchanges who are regulatory compliant, are now trying to push more aggressively to list new assets so as to not lose investors who are looking for unlisted altcoins elsewhere.

Regulatory Guidelines Becoming More Clear

Exchanges trailblazing a path is setting precedents and forcing regulators to make clear guidelines. In the next few years, we’ll see the regulatory framework become more consistent and clear.

Liquidity Squeeze for Altcoin Markets

In the short term, we should expect a liqudity squeeze as US investors are increasingly more barred from altcoins. Overall I don’t think it will be a heavy blow by itself. But compounded with speculation, and the fact that Altcoins have already taken a beating due to Bitcoin’s surging dominance in the last few months, we might see something like a domino effect.

Goomba put together a list of altcoins that are likely to be restricted to US investors.

ALtcoin US Pairs allowed

How Does This Affect HodlBot?

HodlBot is a cryptocurrency trading bot that works on top of Binance and Kraken.

We help you create custom portfolios & indices, and automatically execute the trades required to diversify your portfolio.

In light of the most recent change to Binance’s terms of use, we’ll be adding multiple US friendly exchanges by the end of Binance’s 90 day grace period, September 12.

We recognize that some US based investors will still continue to use Binance via a VPN. If you choose to do so, HodlBot will not get in your way.

About the Author

Anthony Xie Founder of HodlBot

Written by Anthony Xie

I’m the founder of HodlBot.

I’m a big data nerd. I like to talk about all things data, finance, and crypto. You can find me on Twitter here.

At HodlBot, we make it easy to automatically create diversified cryptocurrency portfolios.

We created HODL10, HODL20, HODL30 indices and the first ever application that allows you to create your own personalized cryptocurrency index fund.

To get started all you need is a

  1. Cryptocurrency Exchange Account
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