Binance deadlock shows the limits of bitcoin
What’s the point of murdering bitcoin if you can’t spend the loot?
Customers of Binance, one of the world’s largest cryptocurrency exchanges, are facing this question after their accounts were suddenly cut off from one of the UK’s major payment systems.
Days after the Financial Conduct Authority ordered Binance to stop all regulated activities in Britain, the digital asset firm stopped allowing its customers to withdraw books through Faster Payments, a service used by banks. big banks. Credit card transfers in pounds have also been discontinued.
Binance insists the FCA ban does not affect its business and claims the links are being restored. Customers could still transfer their assets to other platforms. But the sudden shutdown highlights a key issue for the freewheeling cryptocurrency world. With the notable exception of El Salvador, no country uses bitcoin as legal tender – and even Elon Musk has canceled plans to accept it as a payment method for Teslas. Instead, crypto holders need to find ways to convert them into fiat currencies.
This is where the catch lies. Regulators who have spent decades fighting money laundering and terrorist financing are not about to welcome anonymous streams of money from unsupervised digital coin exchanges. The anonymity of bitcoin and some of its competitors is clearly popular with cybercriminals and tax evaders.
Facebook got a taste of the potential backlash in 2019 when it announced plans to revolutionize the global payments system with Libra, a digital currency. The project encountered a regulatory buzz and was repeatedly delayed, reduced and even renamed Diem.
Since then, governments have become more interested in cryptocurrencies and have much more sophisticated their approach. Most major central banks are at least wondering if they should issue their own digital currencies, as banking and securities supervisors begin to integrate crypto platforms into the regulatory network.
Binance’s woes stem directly from the 2020 UK decision forcing crypto asset companies to register with the FCA and demonstrate compliance with anti-money laundering rules. The watchdog says an “unprecedented” 90% of registration applicants, including the UK branch of Binance, have abandoned their applications rather than meet FCA standards.
In Canada, the Ontario Securities Commission began take legal action against unregistered crypto exchanges, prompting Binance to pull out. german and american guard dogs also have the crypto platform in their sights.
Cryptocurrency optimists continue to view each regulatory crackdown as a positive sign of the media’s maturation. They’re right. Banking regulators would not assign high risk weights to digital currencies if certain lenders did not start holding them. Japan Financial Services Agency to Not Release Second warning in three years on illegal operations if Binance did not continue to attract customers.
But there is a limit to this rosy prospect. China’s crackdown on the energy-hungry process of bitcoin production has seriously rocked the price of the most well-known cryptocurrency. And scrutiny elsewhere is forcing crypto vendors to rethink their business models.
So far, Binance and other crypto platforms have been able to operate with fewer employees and less elaborate controls on clients than their counterparts in traditional finance. This window of mercy is almost certainly closing, forcing the industry to make a difficult choice.
Too much scrutiny will drive away the early freewheeling adopters who fueled their rapid growth. But without proper systems and controls, crypto’s wider appeal is limited. Coinbase, one of the largest platforms in the world, is one example. Its April direct listing on the Nasdaq was seen as validation for the sector, but stocks are down more than 20% from its closing price on its first day. Investors fear that falling bitcoin prices will erode transaction volumes and that increased competition and costs will reduce margins.
Just look at how many regulated banks, brokers and exchanges sense an opportunity. On Tuesday alone, Deutsche Börse said it had bought a Swiss crypto provider, and Fidelity, Standard Chartered and TP ICAP announced that they have have teamed up to launch a crypto trading platform.
Cryptocurrency fanatics can applaud Binance’s anti-authoritarian stance. Most investors want a platform where they can easily withdraw their money.
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