Binance Comments on The Divide Between Banking and Crypto Firms

Byline: Hannah Parker

Experts warn of a growing link between crypto companies and conventional banks as exchanges lose banking partners. The development of cryptocurrencies has widened the gap between established financial systems and the new world of digital money.

The processing of bank transactions in U.S. dollars will temporarily cease at Binance — the largest cryptocurrency exchange in the world by trading volume. On February 6, 2023, the exchange tweeted that none of its other trading platforms would be impacted. There was no justification for the announcement. However, the suspension will impact only 0.01% of the exchange’s customers. Changpeng Zhao, the exchange’s CEO, assured users in a tweet that they are working quickly to find a solution.

So, how is the divide between traditional banks and crypto firms growing and what has Binance said about this?

The Separation Between Banks and Crypto Firms

Traditional banks are institutions that are subject to strict regulation and offer a variety of financial services to both consumers and corporations. They usually rely on a system of trust based on legal and regulatory frameworks and are centralised. Banks keep deposits, make loans, and profit from interest and other fees.

In contrast, crypto businesses run on decentralised systems not overseen by the same authorities as conventional banks. These businesses rely on blockchain technology and cryptography rather than legal frameworks. Without intermediaries like banks, cryptocurrency companies allow individuals and corporations to keep and exchange digital assets directly.

Different risk management approaches and platforms like Bitcoin Apex help identify specific client needs and business models that contribute to closing the gap between banking and cryptocurrency companies. Unlike cryptocurrency companies, which frequently put innovation and speed ahead of risk management and operate in a largely uncontrolled environment, banks are generally risk-averse and operate in a highly regulated environment.

Customers’ requirements and expectations of traditional banks and digital currency businesses differ. Banks provide various financial services but are sometimes viewed as cumbersome and slow, with high fees and restricted accessibility. On the other hand, cryptocurrency businesses are frequently linked to speed, innovation, and low fees, but they are also seen as high-risk and lacking in customer safety.

Last but not least, the income models banks and cryptocurrency companies use differ significantly. While banks depend on interest and other fees, cryptocurrency businesses rely on speculation, mining rewards, and initial coin offerings (ICOs).

Despite these disparities, there is a rising trend for banking and cryptocurrency companies to work together. Some banks are considering using blockchain technology and digital currencies to streamline processes and provide clients with new services. Some crypto companies attempt to overcome regulatory issues and create more user-friendly and secure systems.

Binance Steps In

In the United States, Binance recently ran into related financial problems. As of February 1, 2023, Signature Bank, its SWIFT transfer partner, will only allow trades from customers with U.S. dollar bank accounts exceeding $100,000, the company stated on January 21, 2023. The bank has already said it would severely limit deposits from users of cryptocurrencies.

At the time, Binance said it was seeking a new SWIFT partner and would still accept all SWIFT transactions involving other currencies and transactions in U.S. dollars made using credit or debit cards.

The most recent step by Signature Bank follows its disclosure in December of plans to liquidate up to $10 billion in crypto deposits to lessen its exposure to the volatile market changes. The bank’s CEO, Joe DePaolo, said, “We are not a cryptocurrency bank. We don’t want to be obligated to any particular sector or client,”

An insider from Binance shared, “We are pausing USD bank transfers as we upgrade our services. We have contacted affected users directly and regret any inconvenience this causes. We are actively working to find an alternative solution for SWIFT bank transfers. ”

According to Nansen data provided to Cointelegraph, prominent stablecoin moves include those of the cryptocurrency trading organisation Jump, which withdrew $160 million in stablecoins, and Oapital, a company that invests in digital assets, withdrew $230 million.

Banks generally hesitate to engage with digital assets, especially without uniform regulations governing the developing industry. Until the Markets in Crypto-Assets package, a pan-European regulatory framework for digital assets was implemented. This effectively became a comprehensive ban on a national regulatory level in several European Union member states.

For banks, remaining a member of the financial system is paramount. If they fear being cut off because they assumed too much risk, they will forego taking that risk altogether.

According to Eddie Hui, chief operations officer at cryptocurrency exchange platform MetaComp, it is not uncommon to see an increase in bank runs on exchanges where consumers try to withdraw their money simultaneously.

Such risk could be reduced by limiting exposure to cryptocurrencies and attempting to diversify the clientele. For banks and their shareholders, who the cryptocurrency market may have burned in 2022, it makes sense to take this course of action.

The line separating cryptocurrency companies from banking institutions may continue to blur as both sides look for new methods to offer financial services in a market that is developing quickly. The recent move by Binance’s USD banking partner caused a stir in the cryptocurrency industry, especially in light of the catastrophic year 2022, which saw many crypto goliaths fall from their perches and confidence in the ecosystem decline. Although regulatory agencies have stated that cryptocurrencies will be their top concern, experts think universal restrictions are essential to regaining public trust. In the meantime, exchanges must take independent measures to reduce the risks and obstacles.