Bitcoin exchanges’ reliance on Taiwanese banks could be causing current wire transfer problems, said BitMEX CEO Arthur Hayes. Even if they find banking alternatives, the risks may still be unacceptable to many traders.
Large exchanges Bitfinex and OKCoin international have suspended USD deposits and withdrawals in the past weeks. Both have stated the suspensions are temporary, and that they are seeking other banking arrangements.
However since then BTC price spreads of $80 and more appeared between those two exchanges and others. Prices are far higher at the suspended-transfer exchanges. This echoes the situation with Mt. Gox in 2013, which traded BTC at notably higher prices after experiencing problems remitting USD to American customers.
Taiwanese Banks Have a Reputation for Less-Strict Compliance
Hayes highlighted the Taiwanese banking issues in his regular “Crypto Trader Digest” newsletter. That territory’s banks, he wrote, have developed a reputation among US regulators for lax KYC/AML conditions.
Taiwan’s banks have come under greater scrutiny from US regulators in the past year. In August 2016, state authorities fined the New York branch of Taiwan’s Mega Financial Holding Co. for “lax compliance and anti-money laundering violations”. Illinois regulators then criticized the bank’s Chicago branch in October 2016 — which resulted in the bank’s manager being replaced.
According to Reuters, Mega has close ties to Taiwan’s government. 200 of its customers also appeared in the infamous “Panama Papers” leak. These detailed the complex shell company and banking arrangements law firm Mossack Fonseca used to help wealthy clients avoid tax.
Bitcoin businesses, Hayes wrote, have struggled to maintain banking relationships in many countries. Some may have turned to Taiwanese banks for the very reasons those banks are now under scrutiny.
“While traders are right to be nervous, it is not a given that Bitfinex and or OKCoin will be unable to operate. Yet, careful traders will take action.”
Some may stay for the arbitrage opportunities that those exchanges’ higher prices offer. However, many also remember how it ended for those same trading advantages at Mt. Gox just three years ago.
Crypto Exchanges Simply Too Risky for Banks
If compliance at Taiwanese banks must tighten to please US authorities, Hayes added, those banks may simply ditch cryptocurrency exchanges for being too risky.
Since Taiwanese banks usually don’t have US branches, they rely on “correspondent banks” in the US. All transfers to US customers must pass through US banks. To avoid trouble, those banks (such as Wells Fargo) are freezing Taiwanese accounts henceforth.
According to its (since-withdrawn) lawsuit against Wells Fargo, Bitfinex revealed it holds $430 million USD worth of digital currency and has $130 million in Taiwanese bank deposits. Fellow plaintiff Tether has around $50 million in Taiwanese deposits.
Without corresponding US banks, those funds are effectively blocked from the US for the time being.
Hayes suggested traders get funds out of affected exchanges via bitcoin or altcoins, or even Hong Kong dollars — which are pegged to USD. However the more adventurous might like to sell bitcoin for USD at the inflated prices, and hope they can still withdraw those dollars at some stage.
For the exchanges, now there are two challenges. The first is finding new, workable banking relationships. The second, perhaps more important, is hanging on to their existing customers.
Would you, or do you use any cryptocurrency exchanges outside the US? Let’s hear your thoughts.
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