Binance Has Some Bad News for Crypto Investors

The world's first cryptocurrency exchange no longer accepts dollar transfers to buy coins like Bitcoin.

This year the cryptocurrency market has smiled on its investors. 

At least so far, the market momentum is good and some are already hoping for a repeat of 2019. 

At the time, bitcoin's rise coincided with a peak in the Federal Reserve's monetary policy. That's comparable to the current period. 

According to many experts, the Fed might slow down its aggressive interest rate hikes, which have particularly hurt riskier assets such as cryptocurrencies and technology stocks.

Investors are also fatigued after the so-called crypto winter, which decimated prices late last year. As a result, investors slowly moving back into the market plus a more accommodating Fed form a surprising combination that is pushing prices higher.

In mid-2019, the bullish move led to the world's largest cryptocurrency more than tripling (up 247%) to $13,800. Bitcoin prices this year were up 39% to $23,004.24 at last check, according to data firm CoinGecko. The cryptocurrency market is currently valued at $1.12 trillion, up 1.6% in the past 24 hours.

Investors who saw the value of their coins drop in 2022 seem relieved. They are therefore more inclined to ignore bad news, like the sudden collapse in November of Sam Bankman-Fried's FTX cryptocurrency exchange and related hedge fund Alameda Research. 

Binance: US Dollar Transfers Suspended

The consequences of this debacle are still being assessed. And now Binance, the world's largest cryptocurrency exchange, has just made a decision that's linked, the platform says, to the FTX scandal.

The platform temporarily suspended deposits and withdrawals in U.S. dollars through bank accounts. 

This means that investors who want to buy coins like bitcoin, ether, solana, dogecoin and cardano will no longer be able to transfer U.S. dollars from their bank accounts to the platform. Investors who want to sell their coin will not be able to receive U.S. dollars to transfer to their accounts. 

Transactions via other fiat currencies, such as euros and the British pound, are not affected.

"We are temporarily suspending USD bank transfers as of February 8," a spokesperson said in an emailed statement. "Affected customers have been notified directly. It’s worth noting that only 0.01% of our monthly active users leverage USD bank transfers, but that we are working hard to restart service as soon as possible."

The spokesperson added that "in the interim, all other methods of buying and selling crypto remain unaffected, including bank transfer using one of the other fiat currencies supported by Binance (including Euros), buying and selling crypto via credit card, debit card, Google Pay and Apple Pay and via our Binance P2P [peer-to-peer] marketplace."

Binance US, the US subsidiary of Binance, which is an independent entity, is not affected by the suspension of US dollar transfers, a spokesperson said.

Banks Are Reluctant to Work With Crypto Firms

Binance's decision is not really a surprise. Traditional banks are often reluctant to work with crypto firms to limit the risks associated with the fact that the anonymity prevailing in the crypto industry encourages money laundering and other illicit transactions.

By forging partnerships with crypto firms, traditional banks must further expand their risk-oversight teams. Many financial institutions simply prefer to avoid this additional headache, especially since the majority of crypto companies are not public, so they have no obligation to be transparent about their operations.

After the FTX debacle regulators also renewed their warnings to banks about the risks of doing business with the crypto sphere.

"While some banks [are] withdrawing support for crypto, other banks are moving in," tweeted Changpeng Zhao, co-founder and chief executive of Binance, on Feb. 6. "Some setbacks were expected from last year's incidents. Long term, keep building."

The "setbacks" he mentions include the downfall of Bankman-Fried's empire. 

He nonetheless acknowledged that "this is still a bad user experience and the team is working on quickly resolving this issue."

Binance had said in January that its banking partner, Signature Bank, agreed to handle investors' transactions only if they concerned sums exceeding $100,000. The financial firm's decision reflected a move to reduce its exposure to digital assets.