The conflict escalates

Following the announcement of the SEC lawsuit against Binance and Coinbase that we discussed in this previous article, the battle of crypto exchanges against the U.S. regulator intensifies!

On June 12th, Binance.US filed a legal motion requesting the presiding judge to reject the U.S. Securities and Exchange Commission’s (SEC) request to freeze the exchange’s assets. Binance stated that the order would significantly affect its business and harm customers. The potential impact on customer funds could hold some weight. The SEC argued that the exchange violated securities laws for years, thereby jeopardizing customer funds, but the asset freeze could potentially have the same result.

The defense lawyers described the SEC’s request as “draconian”, an adjetive which refers to laws, rules, policies, or actions that exhibit an extreme degree of harshness, severity, or strictness. The term originates from Draco, a historical figure in ancient Athens who became known for implementing an exceptionally rigorous legal code.

There are other reasons why Binance.US will need to bolster its defense. The exchange’s market depth has plummeted by 78% since the SEC lawsuit was announced.

Market makers have exited Binance Exchange in large numbers, instantly causing a significant decline in market depth. With insufficient liquidity, the exchange could face a substantial uphill battle to regain its previous position, if it can survive the legal battle against the SEC in the first place.

On the other hand, the Solana Foundation has rejected the classification of its token SOL as a security by the SEC. Polygon Labs has also expressed a similar sentiment, stating that they developed and implemented MATIC outside the United States.

Some latest news:

• Binance has hired a former official from the Securities and Exchange Commission (SEC) as part of its legal team to defend against accusations of operating as an unregistered securities exchange. According to a June 12th Bloomberg report, Binance has hired former SEC Co-Director of Enforcement, George Canellos, along with three other attorneys from the international law firm Milbank LLP. Canellos left the SEC in 2014 after serving in various leadership positions for over four years.
• U.S. Congressman Warren Davidson introduced the “SEC Stabilization Act” in the House of Representatives, announced on June 12th. One of the main provisions of the bill is to dismiss the current Chairman of the Securities and Exchange Commission (SEC), Gary Gensler. Davidson stated in a press release: “The U.S. capital markets must be protected from a tyrannical Chairman, including the current one. That’s why I will introduce legislation that addresses the current abuse of power and ensures protection that benefits the market in the years to come. It’s time for real reform and for Gary Gensler to be fired as SEC Chairman.”
• One of the high-profile voices criticizing Gensler this week has been David Sacks, former COO of Pay Pal, who claimed that “Coinbase has essentially done everything right.” He asserts that what Gensler and the SEC are saying is that operating a cryptocurrency exchange in the United States is not legal. Sacks believes that only Congress has the power to impose such broad restrictions.

What does the future hold for cryptocurrencies?

The controversy

• The SEC crackdown could send crypto businesses overseas. There is certainly evidence suggesting that crypto companies are already turning their backs on the U.S. market. In the span of a week, major exchanges like Robinhood have delisted tokens classified as securities by the SEC, while the U.S. arm of Binance has been forced to completely suspend USD withdrawals and deposits. To make matters worse, outside the United States, politicians are making moves to attract crypto businesses in exile. For instance, on Saturday the 10^th Hong Kong Legislative Council member Johnny Ng has extended an invitation to Coinbase and other crypto exchanges to set up operations in Hong Kong, offering assistance in the application process for official trading platforms and further development plans.
• But, while Coinbase is undoubtedly an attractive target for Hong Kong’s crypto hub ambitions, it seems likely that the American company will continue to fight on the domestic front. In an interview with The Wall Street Journal, Coinbase CEO Brian Armstrong expressed his disappointment with the SEC “enforcement-first” approach over the past year. “I don’t feel like there’s a clear playbook. The only high-level statement they’ve made is that everything that’s not Bitcoin is a security,” he commented. He added that if all crypto assets except Bitcoin are deemed securities, it would mean the end of the cryptocurrency industry in the United States.

The consequences

In related news, Bitcoin and ether reserves on U.S.-based crypto exchanges have dropped below 50% due to the ongoing regulatory crackdown in the country. According to a research report by CryptoQuant, U.S.-based exchanges have been surpassed by offshore/international exchanges in terms of the amount of bitcoin they hold for their customers. The report also highlights that the bitcoin reserves held by U.S.-based exchanges are at their lowest level since January 2017. Crypto reserves represent the coins and tokens held by exchanges on behalf of users, and the decline in reserves suggests that users are withdrawing their funds from exchanges, possibly due to security concerns or to store their assets in private wallets.

• Summarizing: The regulatory crackdown by U.S. authorities has prompted international exchanges to gain traction. The SEC recently sued both Binance and Coinbase for allegedly violating securities regulations. Meanwhile, regions like Hong Kong have adopted crypto-friendly policies, attracting more crypto firms and users. The U.S. federal government and regulators have made it increasingly challenging for U.S.-based crypto businesses, leading some exchanges to cease operations in the country or establish platforms outside the U.S. In fact, a Hong Kong lawmaker openly invited Coinbase to move to an Asian city.

Given the regulatory and political pressure, what can ordinary users do for themselves?

The key to safe crypto trading in a context of regulatory pressure is to resort to decentralized exchanges (DEXs). Or simply trade outside of any exchange, using specialized trading DApps such as DEXTools. In any case, to ensure anonymity it is best to avoid platforms with KYC, which is also not without other risks. Let’s take a look.

What does KYC mean and what are the pros and cons of avoiding it?

• KYC stands for Know Your Customer. It is a process implemented by entities and companies that provide financial services, aiming to comply with various laws to prevent money laundering and other illicit activities. The KYC process is part of the registration or onboarding process. To pass it successfully, customers are required to provide identification documents and personal information such as their name, date of birth, nationality, etc. In some cases, additional information like tax residency may be requested.
• At first, companies that offer crypto services, known as VASP (Virtual Asset Service Providers), are also obligated to comply with KYC requirements. However, there are exchanges that do not enforce KYC for their customers or only apply it for certain operations. The location of the company and the nature of its operations play a role. Authorities in a country with lenient regulations regarding the use of cryptocurrencies may not prioritize user identification, especially when fiat money is not involved.
• In fact, many KYC-free platforms only allow crypto transactions. In certain jurisdictions, KYC is mandatory. The European Union serves as a clear example of authorities striving to control every movement of capital, whether in the form of crypto or fiat. The official argument for such measures is to prevent tax evasion and the funding of criminal activities, even though the privacy and freedom of citizens may be compromised.

It is legitimate for individuals to desire anonymity. Assuming that a user intends to engage in illegal activities is something that bothers a significant portion of the crypto community. While they understand some of the the measures taken by politicians, they prefer managing their finances without any organization or group of hackers being able to identify them.

Why trade on a cryptocurrency exchange without KYC?

• The main reason to buy and sell cryptocurrencies on a platform without KYC is privacy. Trading on an exchange without verification reduces the likelihood of personal information falling into the wrong hands. In addition to anonymity, these platforms often offer global services, allowing users to trade from virtually anywhere in the world. KYC-free exchanges democratize access to the market, particularly by removing barriers for users in “irregular” situations, such as the unbanked, individuals without identity documents, or those without a fixed residence.
• Furthermore, they enable transactions in situations where anonymity is imperative, not due to illicit reasons, but for personal security. However, it is important to note that there are risks associated with KYC-free platforms, including scams and hacks. Therefore, is essential conducting thorough research before depositing a significant amount of capital into an exchange, especially a decentralized exchange (DEX).

Don’t forget this: DYOR (Do Your Own Research) is crucial for personal crypto security! 

Next, we will see some of the best exchanges without KYC, or with a minimum KYC reserved only for specific operations, with which to trade securely with crypto assets while maintaining a high degree of anonymity.

Best No-KYC exchanges (or with minimum KYC)

Kraken

• Availability: US and over 150 countries
• Assets: BTC and over 220 cryptocurrencies
• Withdrawal Limit: $5,000
• Trading Fee: 0.16% (maker) / 0.26% (taker)

KuCoin

• Availability: UK and over 150 countries
• Assets: BTC and over 850 cryptocurrencies
• Withdrawal Limit: 1 BTC / 24h
• Trading Fee: 0.1%

Changelly

• Availability: EU and over 150 countries
• Assets: BTC and over 500 cryptocurrencies
• Withdrawal Limit: No limit
• Trading Fee: 0.25%

BingX

• Availability: EU and 100 countries
• Assets: BTC and over 500 cryptocurrencies
• Withdrawal Limit: 50,000 USDT / 24h
• Trading Fee: 0.05% – 0.2%

GateIO

• Availability: EU and over 180 countries
• Assets: BTC and over 1700 cryptocurrencies
• Withdrawal Limit: $100,000
• Trading Fee: 0.2%

BYDFi

• Availability: EU and over 150 countries
• Assets: BTC and over 40 cryptocurrencies
• Withdrawal Limit: No limit
• Trading Fee: 0.1% (maker) / 0.3% (taker)

Bitfinex

• Availability: EU and over 180 countries
• Assets: BTC and over 190 cryptocurrencies
• Withdrawal Limit: No limit
• Trading Fee: 0.1% (maker) / 0.2% (taker)

Conclusion: Weighing Privacy Risks and Benefits

No-KYC exchanges provide a high level of privacy and accessibility for users seeking anonymity in their cryptocurrency transactions. However, risks such as scams and hacking exist, emphasizing the importance of thorough research before depositing significant capital, especially in decentralized exchanges (DEXs). Users should carefully consider the trade-off between privacy and security when choosing an exchange that aligns with their preferences and needs.

• Summarizing: never forget to DYOR (Do Your Own Research).