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Why is it a problem to withdraw money from cryptocurrency exchanges?

Cryptocurrency blog article

TL;DR; – Banks and other financial institutions risk losing their license or paying huge fines if they allow transactions with cryptocurrency exchanges. There are also other reasons why it’s unhealthy for banks to deal with these type of transactions.

In this article, we try to explain the reasons why VISA parted ways with its partner WaveCrest and why even some people’s bank accounts are getting blocked.

What’s the deal about cryptocurrencies?

The cryptocurrency craze is the fastest growing financial market this world has ever seen. That’s right – ever. The financial markets haven’t experienced anything like this before.

People compare cryptocurrency and blockchain technology to what internet did to regular mail.

Right now there are more than a thousand cryptocurrencies available. At the moment of writing this article, the most popular of these is Bitcoin having a total market capitalization of $189,725,855,360, which is 33.6% dominance of total crypto market cap.

However, the volatility of the cryptocurrency market is astonishing – sometimes prices are changing by 3-8% in a glimpse of an eye. Some cryptocurrencies have increased in value by as much as 9600% in just a few days. Imagine that in theory 500 EUR could make you 40 000 EUR. And, of course, it can also work the other way around.

These numbers and the technology behind the cryptocurrencies are the reasons why so many people are talking about this topic right now.

There are two general groups in this large community:

  • The ones who understand and believe in the technology itself
  • The ones who want a cut of those profits

What changes does Blockchain bring?


The Globally-recognized, leading authorities in the field and authors of the book “Blockchain Revolution” – Don and Alex Tapscott explain blockchain like this:

The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Basically, every transaction is verified without a central authority.

The blockchain technology will probably disrupt some existing markets or at least turn the way they work upside down. Those markets will not go extinct; they will just work differently than we’re used to. Blockchain decentralizes the whole process, excludes monopoly power, and eliminates the middleman leading to lower costs.

For example, one of the most popular cryptocurrencies Ripple (XRP) has signed deals with MoneyGram, one of the leading money transfer companies in the world, IDT Corporation, MercuryFX and tens of other big banks, financial institutions and IT companies are using Ripple’s technology, i.e. Bank of England, Federal Reserve System, Accenture, SWIFT.

Many people have actually earned a considerable amount, and now they want to cash out. But often cashing out is not that easy as it is was to deposit funds. Why? Well, some financial institutions are just not very fond of cryptocurrency markets – yet.

But first, you must understand why banks and other financial companies seem to be giving a hard time to their customers when it comes to cryptocurrencies.

International legislation and bank policy

In short – banks and other financial institutions are not allowed to deal with these kind of transactions by their official regulators.

The underlying reason for blocking withdrawals or even deposits into cryptocurrency exchanges are the possibilities people can do with cryptocurrencies – anonymously. Obviously, incognito payments allow a much wider range of fraudulent or even criminal actions.

To minimize unlawful activity, banks and other institutions verify their customer identity and monitor their financial transactions’ history.

In other words, banks comply with international legislation that has been developed for maximum financial transparency and security. To prevent money launderers, scammers, and other criminals from using financial institutions to their benefit, (i.e., legalizing money obtained from criminal activities), there are two main policies:

AMLD (Anti-money laundering directive). In short, it states that you must provide the source of the funds if requested.

KYC (Know your customer) policy states that you must provide proof of identity before you can start depositing, withdrawing or cashing out. Otherwise, you can only deal with a very limited amount of funds.

If banks or other financial institutions deal with customers whose source of funds is unknown, they will lose their license or pay massive penalties.

Visa and Mastercard – a different approach to cryptocurrencies

At the very beginning of 2018 VISA parted ways with one of the largest cryptocurrency card providers – WaveCrest. Its clients included companies in cryptocurrency niche, i.e. TenX, Wirex, Bitwala, and Cryptopay.

The statement by VISA read: “It recently terminated a single prepaid card issuer in Europe from our network for violating Visa’s operating regulations. That issuer, WaveCrest, was required to close its Visa card products, some of which were linked to cryptocurrency wallets.”

Meanwhile, Mastercard has been implementing blockchain technology to improve payment processes which will result in faster and cheaper transactions. Although, sadly for cryptocurrency traders, Mastercard is not going to issue its own token, cryptocurrency or commodity.

But why some banks allow withdrawing and depositing funds to cryptocurrency exchanges?

We, as a society, want security. Nobody wants to be hacked, robbed or deceived. That’s why there are regulations and laws for our safety.

The bank system offers a possibility to cancel or return a payment because the system is centralized and trackable. The blockchain is decentralized and once the payment is confirmed, it’s impossible to cancel or reverse it, because there is no institution controlling it.

Some banks will allow you to operate with small amounts of money and leave you alone. Basically, it’s a calculated risk. It is still something they should not be doing.

But once they will see any misleading transactions, they will ask you to provide the source of funds. And naming the cryptocurrency exchange as a source will not go through.

What’s the solution?

The bad news is that it might become harder and harder to cash out from cryptocurrency exchanges. We already see national banks as well as big online players like Monese, Revolut, and Monzo intermittently blocking incoming payments from exchanges like Bitstamp or Coinbase. At the moment, there isn’t a strict regulation in place about withdrawal amounts and frequency that each bank allows from crypto exchanges.

The safe solution right now would be to wait until the big players, i.e., Mastercard and VISA take a stand about this situation. And then we can hope for new regulatory mechanisms and adjustments for how centralized institutions work with cryptocurrencies.

Meanwhile, we have to understand that the banks and other financial institutions are not simply against the cryptocurrencies. They are effectively risking their license when their customers are dealing with big amounts of money from an unknown source.

All this is still quite new and it takes a lot of time and resources to adjust the laws, systems and processes.

Some people are able to withdraw funds from cryptocurrency exchanges without any problems. While the regulations are still “work in progress” we will see different results for the same actions, i.e. someone will not have any mishaps, but others will find a stepping stone making the first step.

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