On August 11, digital assets exchange ShapeShift founder and CEO Erik Voorhees revealed that Bitfinex, the third largest cryptocurrency exchange behind Bittrex and South Korea’s Bithumb, has terminated its services in the US due to inefficient and impractical regulations.
“Bitfinex is closing service to US customers. Yet another innovative exchange abandoning US regulatory nightmare,” said Voorhees, who had previously terminated ShapeShift’s service to its users and clients in New York, after the BitLicense was approved by the New York State Department of Financial Services which required companies like ShapeShift to maintain strict Know Your Customer (KYC) systems that placed user data vulnerable to security breaches and hacking attacks.
In an official company announcement, the Bitfinex team stated:
“Unfortunately, we have an obligation to our whole customer base and to our shareholders to make rational resource allocation decisions. Furthermore, over the next 90 days, we will be discontinuing services to our existing U.S. individual customers. We will be communicating further with affected users on timing and specifics.”
Reasons Behind the Termination of Bitfinex’ Services in the US
Effective upon the release of the company’s announcement on August 11, Bitfinex stopped receiving verification requests from US-based consumers and has begun to clear its backlog of verification requests.
The Bitfinex team emphasized that it has considered pulling its company away from the US retail marketplace for a relatively long period of time, and in light of the recent difficulties surrounding the company’s financial service providers and the abrupt closure of the bank accounts of Bitfinex, the firm came to a decision to end its services in the US.
“We have for some time considered pulling away from the retail marketplace in the U.S., and now with a current backlog of verification requests and ongoing difficulties in providing USD deposit and withdrawals for U.S. individuals, we feel that the time has come to begin disengaging from U.S. retail customers,” the announcement from Bitfinex read.
One of the driving factors that led to the closure of the services of Bitfinex in the US is the disparity between the amount of resources the company has allocated to serve US customers from actual profits generated through verified US individual accounts. In order to operate in the US, exchanges like Bitfinex, Coinbase, GDAX, Gemini, Kraken, and Bitstamp are required to comply with strict KYC and Anti-Money Laundering (AML) policies. Furthermore, the SEC’s recent ruling concerning Initial Coin Offerings stated that any exchange or project offering tokens to US customers falls under the regulator’s jurisdiction.
In a financial standpoint, it is a logical decision from Bitfinex to leave a small market for the company that is the US and cut massive costs and expenses in return. More importantly, for the sake of user privacy and financial freedom, it is of utmost importance for Bitfinex to not operate in markets that require excessive KYC and AML requirements that do not necessarily benefit neither the company and its users.
“Accounts while a dramatically outsized portion of our resources goes into servicing the needs of U.S. individuals, including support, legal and regulatory. We anticipate the regulatory landscape to become even more challenging in the future. Bitfinex is not based in the United States. Exchanges based in the U.S. are better positioned to properly service retail U.S. customers,” added Bitfinex.