3 - 4 minute read
Binance.US is struggling to find a bank that will directly hold its customers’ cash following the failure of its two most widely used banks for US crypto firms: Signature and Silvergate Capital. The exchange reportedly failed to establish direct banking relationships with Cross River Bank and Pennsylvania-based regional bank Customers Bancorp Inc. due to the regulatory risks involved. According to The Wall Street Journal, some banks are now less willing to do business with Binance.US partly because Binance and its CEO Changpeng Zhao are facing charges for allegedly violating the compliance rules of the Commodity Futures Trading Commission (CFTC) in the U.S.
As a workaround for the situation, Binance.US is reportedly using at least one middleman to store its customers’ funds. The exchange is said to rely on crypto services firm Prime Trust, which stores funds from clients with its network of banking partners.
This move has caused concern among some traders who are fearful that their cash may now be at greater risk due to the use of a middleman. There is also concern that the process of moving and sending funds may slow down as a result of customers’ cash being held at the middleman’s banks. Furthermore, users may also experience disruptions in some services such as Apple Pay and Google Pay deposits, which are currently unavailable.
According to Anthony Scaramucci, founder of SkyBridge Capital, there is an increased risk of hacks and losses when a middleman is used to store funds. He explained, “the more intermediaries you have in the system, the more people that can have access to that data or those assets. It’s much better to be able to store those assets in your own cold storage system if you’re regulated.”
Binance.US has assured its users that it is working on transitioning to new banking and payment service providers over the next several weeks. It has also stated that it remains committed to maintaining the security of its customers’ funds during this transition period.
Experts are advising traders to be cautious during this time and to consider alternative exchanges as a backup plan. Ryan Detrick, chief market strategist at LPL Financial, said, “Given the importance of custody in the crypto world, you want to make sure your exchange has it in the right place. Make sure you trust the exchange you have your crypto funds with.”
The recent challenges faced by Binance.US highlight the risks of relying on a middleman to store funds. While the exchange has assured its users that it is working on finding new banking partners, traders should be cautious during this transition period and consider alternative exchanges as a backup plan. Trust, security, and compliance should be top priorities for anyone trading cryptocurrency.
