Why Are So Many Crypto Exchanges Unavailable In The U.S?
Regulation may be a hot topic immediately as countries round the world grapple with ways to regulate the slippery beast that's cryptocurrency. The US already features a number of rules in situ, and is probably going to introduce more.
It is these existing regulations, both at a state and national level, that prevent many crypto exchanges from operating within the U.S. Exchanges need to register as money service businesses (MSB's) and obtain money transfer licenses.
Some international exchanges have made the choice that the value and paperwork aren't well worth the effort. Others provide services that are not compatible with U.S. Laws.
Here are a number of the large hindrances for cryptocurrency exchanges within the U.S.
1. Know your customer (KYC) requirements
One reason authorities are concerned about cryptocurrency is that it's anonymous. The fear is that it are often wont to finance crime or launder money from illicit activities. As a result, U.S. Cryptocurrency investors got to fill in their personal information and sometimes upload a photograph ID to line up an account.
The challenge is that privacy and anonymity are a part of the first ethos of cryptocurrencies. And both customers and exchanges get frustrated with the steps involved in stringent know your customer (KYC) processes. For instance, exchanges might not want to manually check photo identification and proof of address.
As a result, some exchanges cop out of asking customers for private data. Those exchanges aren't authorized to work within the U.S.
2. Derivatives trading
Derivatives are complex financial instruments that permit traders back the longer term price of a commodity. Traders can go short (bet on the worth going down) or long (bet on the worth going up). Crypto derivatives are getting increasingly popular worldwide, but it isn't something retail investors within the U.S. Are allowed to access.
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Several cryptocurrency exchanges offer derivatives trading, including leverage and margin. Investors can use leverage to extend their buying power. For instance, if you set down $100 at 5x leverage, you would be ready to take a $500 position. However, you'd also combat a way higher risk, which is why there are restrictions on this sort of trading.
The U.S. Won't license cryptocurrency exchanges that provide derivatives trading to retail investors. Kraken wants to offer limited margin trading to U.S. Clients, but from Midsummer Eve onward, only qualified investors can access this service. (Qualified investors got to have quite $10 million in total assets.) Coinbase Pro has also disabled its margin trading.
Finance, which has a world site and a U.S.-specific site, is under investigation by the IRS and therefore the Department of Justice, who believe that U.S. Customers are using the international site for these sorts of trades.
3. Taxation and other reporting
Money service businesses got to keep detailed records and report any cash transactions over $10,000 to the IRS. U.S.-based exchanges with foreign customers still got to track all customer activity.
U.S. Authorities have crypto evasion firmly in their sights, believing that many dollars worth of transactions are going unreported. Earlier this year, the IRS got a writ to get records from Kraken; it's already taken similar actions against Coinbase. The exchanges got to fork over information on U.S. Taxpayers with crypto transactions that total quite $20,000.
In the future, the govt wants crypto transfers to be treated like cash. If new proposals are approved, any crypto transaction of over $10,000 would wish to be reported.
4. State-specific regulations
Different states have taken wildly different approaches to cryptocurrency regulation. That's why you will find certain cryptocurrency exchanges don't operate in every U.S. State.
Some, like Wyoming, Colorado, and Ohio, have introduced crypto-friendly laws, as they need to draw in the burgeoning cryptocurrency industry. Others, like NY and Washington, have strict crypto requirements.
New York has led the way in crypto regulation. Its License controls how exchanges store currency and which coins exchanges can trade. Many believe New York's framework are going to be used as a basis for stricter federal regulation.
Can non-licensed exchanges still operate within the U.S.?
One of the various challenges in cryptocurrency regulation is that it's a worldwide industry, and technology makes it easy to access services from everywhere the planet. As such, some U.S. Consumers use services that are not licensed as MSB's.
The U.S. Is cracking down on this sort of activity and can likely build up its efforts within the future. At the top of last year, the Commodity Futures Trading Commission (CFTC) took action against crypto exchange Bitmap -- which isn't licensed within the U.S. -- for allowing U.S. Customers to use its service.
It may be tempting to bypass the principles and use non-U.S. Licensed services, but it is also risky. Exchanges may freeze access to customer accounts, authorities are actively pursuing crypto evasion cases, and consumers won't have an equivalent protection.
As cryptocurrency investors, we've to simply accept that regulation is inevitable. Because the industry continues to grow, regulators won't simply turn a blind eye, albeit their actions go against the spirit during which Bitcoin was founded. And careful regulation isn't necessarily a nasty thing. It can protect against bad players and stop us from inadvertently supporting criminal activities.
There are many platforms round the world that are waiting to offer you access to thousands of cryptocurrencies. And to seek out the one that's right for you, you will need to make a decision what features matter most to you.
To help you start, our independent experts have sifted through the choices to bring you a number of our greatest cryptocurrency exchanges for 2021. Inspect the list here and obtain started on your crypto journey, today.
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