Why Are So Many Crypto Exchanges Banned in the U.S.?

Why Are So Many Crypto Exchanges Banned in the U.S.?

It is no secret to anyone that the United States is not the most favorable place for cryptocurrencies and many exchanges, though having originated in the US, have found their demise there as well. The just question that arises from such a paradox is related to why so many crypto exchanges are banned in the country. The answer lies in the complicated structure of the US legal environment and the many laws that have a chokehold on any financial institutions operating inside the United States.

The lack of a clear crypto regulation framework is the main reason why crypto exchanges are being banned in the United States, even if they were established in it. The rising popularity of cryptocurrencies is pushing users in the country to turn to external platforms, but they are often banned from operating with US citizens. As such, foreign exchanges simply have no representation in the United States and cannot serve its users.

The first major obstacle is the presence of extremely strict KYC requirements, which force US citizens to provide extensive personal information for registering on any exchange. Many users are unwilling to provide such information, while some exchanges simply do not have the desire to implement the according procedures, resulting in their immediate and automatic ban on US soil.

Another reason is the presence of derivatives and leveraged trading – both highly regulated activities according to US law. The lack of the necessary licenses, which often cost a pretty penny and require extensive regulation, is a reason why some exchanges cannot operate inside the US. In addition, US citizens must also be accredited investors and traders with the necessary licenses to operate with derivatives and access leveraged trading.

Taxation and reporting are major challenges in the US that any exchange faces inevitably. The IRS – Internal Revenue Service, is brutal in its approach at analyzing every transaction and operator. Failure to report incomes and transactions in excess of $10,000 a year results in heavy penalties. The discrepancy between reporting by individuals is further exacerbated by the fact that such cryptocurrencies as Bitcoin are considered by the IRS to be commodities. Exchanges are obliged to report to the IRS on any US citizens who handle any asset transactions in excess of $20,000. Hence, the obvious difficulties.

Additional pains are caused by state-specific regulations, which can govern cryptocurrency legality on an individual basis. States like Wyoming and Colorado are crypto-friendly, while New York and California are applying draconian KYC measure requirements.

The need for specific licenses, many of them, and some state-specific, present additional challenges for exchanges. It is only obvious that many exchanges do not have either the funds or the desire to engage in the lengthy licensing procedures and then comply with the complicated legal framework of the United States.