Binance US will start client KYC process next week – Will they succeed?

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Updated: 13 September 2019

The Binance crypto exchange success story is one of the hallmarks of the entire cryptocurrency industry. Its “crypto-to-crypto-only” business model has worked across the globe, driving up volumes in over 100 token offerings and making it the largest crypto exchange by volume in 2018. The past months have also been a flurry of new product announcements and even a Venus Project that has designs of leaving Facebook’s Libra in its wake. The U.S. market, however, has always been problematic for Chengpang “CZ” Zhao, the CEO and founder, but now Binance US is opening.

Operating out of San Francisco, the new U.S.-only subsidiary will be one more exchange to proliferate Binance’s growing global exchange network, which includes ones in Jersey, Singapore, and Uganda. The firm’s origins go back to Shanghai, China, but it moved to Tokyo, when Chinese authorities were threatening to ban crypto activities in the country. It has since moved its headquarters to the Republic of Malta, after accommodating legislation was passed there to attract crypto giants like Binance.

Binance made its mark by its “crypto-to-crypto-only” model, although it has committed to a plan of building “fiat-to-crypto” exchanges in several jurisdictions across the globe. For former U.S. clients that escaped detection by using a VPN (Virtual Private Network) to gain access and not be blocked by geographic blocking software, you will not see the same array of features and broad-based token pairings that the global exchange offers. Margin trading will be excluded, and for now only six tokens will be on the menu – Bitcoin, Ethereum, XRP, Bitcoin Cash, Litecoin, and USDT. The limited nature is driven by U.S. regulatory constraints. Binance Coin (“BNB”) will not be on the list.

The presence of Tether’s “USDT” stablecoin is interesting, considering the legal issues facing Bitfinex and Tether from the New York Attorney’s Office. The Tether mechanism will offer traders the opportunity to cash out, so to speak, from the other five cryptos into what amounts to U.S. Dollars without having created a taxable event. An argument can be made that exchanging one crypto for another is merely a “like kind” exchange, one that is typically exempt from taxation. Nothing, however, is ever certain in the tax arena. The IRS may have already issued rulings or given conflicting guidance on this topic.

The question that remains to have an answer is will Binance succeed in an already crowded crypto market of exchanges? It will face harsh competition from several local competitors, the largest being Coinbase, also based in California. Convenience is the name of the game in the States, which Binance could always address at a later date. It may also expand its token offerings in the future. It had talked months back about having 30 tokens initially, not just six. At the end of the day, Binance has demonstrated that it is an innovator. Binance US a year from now may not look anything like it does now.

For the time being, the U.S. subsidiary will begin its customer registration process on the 18th of September. After completing the on-boarding KYC process, accepted clients may transfer assets to their accounts. The firm did not commit to an actual date when formal trading would commence, but that message may soon be communicated.