Centralized crypto exchanges are facing tough questions following regulation clampdowns in several major global jurisdictions that could hurt their trading volumes.
Bybit and Binance’s exit from Canada and US enforcement actions against Binance and Coinbase are narrowing the jurisdictions in which crypto exchanges can legally thrive.
Pressure Mounts for Largest Centralized Exchanges
Centralized exchanges play a vital role in the crypto economy. They serve as fiat on and off-ramps for crypto investors and traders and are often the gateway for many into the crypto industry.
On Tuesday, the US Securities and Exchange Commission (SEC) sued Coinbase for not registering as a broker-dealer, as its widespread crypto crackdown leaves no stone unturned.
This lawsuit follows an enforcement action against Binance that christened $115 billion worth of crypto as illegal.
An earlier CFTC lawsuit against Binance demands potentially billions of dollars in settlement fees, which could significantly dent the exchange’s balance sheet.
Its CEO, Changpeng Zhao, previously defended its financial opacity by reassuring investors it had no debt.
The exchange lost market share to other Korean exchanges after it lifted its zero-fee trading promotion. It may also not find friends in Europe unless its compliance team enforces new Markets in Crypto-Assets (MiCA) money laundering regulations.
MiCA’s Transfer of Funds rule requires crypto exchanges to identify both parties involved in a crypto transaction.
Australian bank Westpac recently announced a new due diligence process crypto exchanges must comply with Before opening accounts.
Binance Australia delisted eight Australian trading pairs and recently had its derivatives license canceled. It also exited Canada after the securities watchdog tightened rules. Bybit announced its Canadian exit soon after.
Where Does Crypto Go Next?
The increasingly tough global climate has narrowed exchanges’ penetration in major jurisdictions, forcing them to set up hubs in regions with friendly regulation.
Coinbase CEO Brian Armstrong said the exchange would consider leaving the US amid a lack of regulatory clarity.
To that end, the exchange has secured a Class F license from the Bermuda Monetary Authority and has made the island nation an international hub.
It recently partnered with Standard Chartered to boost international trading. Armstrong recently favored the UK as a potential destination amid spiking crypto adoption.
Read more about Coinbase’s partnership with Standard Chartered here.
Cameron and Tyler Winklevoss, founders of the Gemini Exchange, have also indicated they are considering setting up a second headquarters in London.
Although not an exchange, XRP issuer Ripple Labs expanded to Switzerland after acquiring crypto custody firm Metaco. Cryptocurrencies are legal in Switzerland.
The United Arab Emirates (UAE) has also proven attractive to crypto firms. Coinbase is in talks with Abu Dhabi, while Bybit recently established a regional hub at the Dubai World Trade Center.
Crypto financial services firm Nexo opened offices in the UAE after US regulations rendered its operations infeasible.
Binance also has a notable presence in the UAE, recently established a Japanese presence after a lengthy exile.
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