Mailbag: How to Navigate the Binance Shutdown

Q: Binance is suspending trading. Bittrex is reducing coins you can trade. It looks like it’s going to get progressively harder for Americans to trade altcoins. Am I right? And, if so, what can we do about it?

A: Unfortunately, you’re right. Rather than risking a drawn-out legal battle with the Securities and Exchange Commission (SEC), Binance is making its exchange unavailable to its American users beginning in September. What’s interesting here is that Binance could have taken the route Bittrex is taking. It could have simply winnowed out the coins it felt were most at risk of grabbing the SEC’s unwanted attention. It evidently felt the safer path would be to make a clean break and begin again in the U.S. with a legally compliant exchange and a U.S. Treasury-approved partner in tow. You can expect more unregistered exchanges to take either the Bittrex route of reducing coins or the Binance route of stopping services to U.S. traders.

There’s plenty of blame to be assigned to both sides. The exchanges, for their part, ignored multiple warnings from the SEC that many of them were operating illegally and should take corrective action. And the SEC’s reluctance to issue clear guidelines gave exchanges the misleading impression that the SEC would be reluctant to crack down on them.

This silly and avoidable dance didn’t need to happen. The only way the SEC will rid itself of its “all talk and no action” reputation is to issue clear and reasonable guidelines. Regulating via enforcement actions to let exchanges know what is and isn’t allowed is just absurd.

Now that the exchanges feel the SEC is about to back up its warnings with real enforcement, it’s going to get a lot worse before it gets better. If you’re holding coins in Binance, you should consider transferring them to legally compliant exchanges, such as Coinbase, Bittrex, Poloniex, Kraken, HBUS and eToro. Of course, there’s a chance that these exchanges won’t be able to take all of your coins.

If you’re trading small amounts of altcoins (2 bitcoin or less), KuCoin is an option. It has more than 400 trading pairs of coins. And there’s no KYC (know your customer) process for “small accounts.” That’s a decent temporary option for altcoin holders.

The altcoin situation is messy. And that’s simply not acceptable. You should write your congressman, the SEC and your state attorney general. Tell them that clarifying regulations on token coins and the exchanges that trade them need to be issued pronto.

The burgeoning crypto space needs clear regulations to realize its potential.

The time for excuses and delays is long gone. The U.S. government needs to do its job. It’s time to fix this cluster muck.

+ Early Investing Co-Founder Andy Gordon

Q: So just how does Facebook plan on making money off Libra? It’s surely not doing it for the good of the world.

A: At this time, we’re mostly speculating about how Facebook will make money off its new stablecoin, Libra. But the right answer is probably “lots of ways.”

First, I suspect it will collect interest on all the cash backing the cryptocurrency. To buy Libra, users will have to exchange their local currency for it. Facebook says all that cash will remain in place, fully backing each Libra with the fiat (government) money equivalent. Even if Facebook can get only a 1% return on that cash, it could add up to huge numbers if it has billions, and eventually maybe even trillions, of dollars’ worth of Libra on the market.

It’s also likely that Facebook will charge merchants processing fees to accept Libra payments.

Eventually Facebook (and others) might make loans in Libra. If the currency succeeds, an entire ecosystem of financial services is likely to sprout up around it. Naturally, Facebook is best positioned to profit from this new system.

It would essentially have the potential to profit in ways that are similar to both central banks and traditional ones.

Facebook is thinking scarily big here. Global commerce powered by Libra. It’s going to be a fascinating experiment.

+ Early Investing Co-Founder Adam Sharp