How to avoid exchange withdrawal bans: Crypto assets and fiat
With withdrawal bans on the rise, what can be done to ensure your crypto assets are safe?
- Crypto exchange withdrawal bans: On the rise
- How to avoid exchange withdrawal bans with crypto wallets
- Popular third-party wallets
- How to avoid fiat exchange withdrawal bans
- How do I withdraw money from Celsius?
Crypto exchange withdrawal bans: On the rise
It seems like 2022 will be the year of the withdrawal bans. When Terra Labs’ LUNA and UST coins spiralled to zero in early May, Binance was forced to temporarily suspend withdrawals of the multi-billion-dollar cryptocurrencies, blaming “network slowness and congestion”. That temporary suspension became permanent when the project failed to recover.
Then, as the entire crypto sector continued to fall into a bear market, the prominent lending platform Celsius, which had more than $24bn on its accounts in December 2021, although that number steadily decreased in the following months, announced a sweeping withdrawal ban on 13 June. As of 15 June, the ban was still in place as an insolvency loomed.
On the same day as the Celsius ban, Bitcoin holders found themselves unable to access their funds on Binance. Although the issue was swiftly rectified, the cause was a matter of contention; Binance blamed a simple technical glitch while news outlets framed the suspension as an effect of the wider market downturn.
The NASDAQ-listed Coinbase exchange also came under scrutiny after the United States Securities and Exchange Commission filings deduced that billions in users’ funds could be become inaccessible in the event of a bankruptcy.
For one reason or another, it seems like crypto traders’ assets keep getting stuck between a rock and a hard place, while concerns over fund security continue to pile up. How can you protect yourself against unexpected crypto withdrawal bans? Are there certain crypto wallets to avoid? The answer is yes, and it all comes down to one clear distinction.
How to avoid exchange withdrawal bans with crypto wallets
Casual investors using a centralised exchange (CEX), such as Coinbase, Binaance, FTX, Bitstamp, Kraken or the plethora of others, might be unaware of how their digital assets are stored. Say you create a Binance account and buy some Bitcoin. That Bitcoin will automatically be stored in a custodial wallet owned by Binance.
In Binance’s own words: “This means a third party will hold and manage your private keys on your behalf. In other words, you won’t have full control over your funds – nor the ability to sign transactions.” When Binance decided to suspend withdrawals of LUNA and UST, users were unable to access these funds, watching in despair as their accounts dwindled to zero.
Furthermore, in the event of an exchange going bankrupt, any custodially-held crypto funds could very well be liquidated. If that sounds worrisome, there is one simple precaution you can take to protect your crypto assets: download a third-party wallet and transfer your coins to it. While the process is more complicated than simply entrusting the exchange with your coins, you do not need to be a genius to manage this.
- First, download a third-party wallet from the App Store/Play Store (some examples will be posted below). For this example, we will use Trust Wallet
- Go to Trust Wallet and create an account (you MUST store your seed phrase somewhere safe, or you could lose access to your funds)
- Press the receive icon
Select the cryptocurrency that you intend to send from Binance (or the exchange you are using)
- After this, you should then see a QR code with a long string of digits below it, which represents your receive address
- Copy this address
- Go back to Binance and press the Withdraw icon
- Select the cryptocurrency you wish to send to Trust Wallet and the amount (it must be the same cryptocurrency as selected on trust Wallet). Paste your receive address and click Withdraw
- Note that network fees do apply. Bitcoin in particular can incur large fees so it is recommended to only transfer large amounts at a time
- Your cryptocurrency should be sent to your Trust Wallet. The process may take between 30 to 60 minutes
- For a tutorial, check out this video on the YouTube channel, How To Finance
- Now that your funds are in Trust Wallet, Binance no longer holds your keys nor has control over your crypto assets. You can now trade crypto on another centralised exchange or even a decentralised exchange (a DEX requires some advanced knowledge of how the blockchain works).
Popular third-party wallets
Some popular options include:
There are more options out there, so it is worth doing a bit of research into what they can provide. It should be note that the above are hot wallets, that is they are online-only wallets. They are the easiest to use, but also the least secure. For added safety, you could consider what is known as a cold-storage wallet. Also known as hardware wallets, cold-storage wallets are physical devices that allow you to store your crypto assets offline, making them virtually impossible to hack.
Some popular hardware wallets include:
Be sure to shop around for the best hardware wallet for your needs. A quick disclaimer: Currency.com is not affiliated with any products mentioned in this article and does not endorse any of them. This information is purely educational. You should always do your own research on a product before making a purchase.
Now that your crypto assets are safe, you may have another question: What happens if Binance bans fiat withdrawals in the UK again?
How to avoid fiat exchange withdrawal bans
Binance’s UK customers have faced withdrawal issues in the past. In June 2021, the Financial Conduct Authority (FCA) enforced a ban on all of Binance’s UK-based regulated activities. The FCA’s remit does not extend to the trading of unregulated cryptocurrencies, but the ban effectively prevented customers from depositing and withdrawing fiat on the platform.
This “piecemeal approach” taken by the FCA meant that customers could still trade crypto on Binance, but were unable to withdraw their cash, let alone deposit any. It took until February 2022 for operations to resume. Unfortunately, customers have no recourse in this scenario, regardless of which crypto wallet they are using, for the obvious reason that fiat deposits and withdrawals are made with traditional credit and debit cards.
There is one viable workaround in the event that such a ban happens again, but it does come with transaction fees. Binance is just one centralised exchange (CEX) out of many, and since the FCA cannot impose a ban on crypto trades, you could:
- Create an account on Coinbase, Bitstamp, eToro or other UK-based cryptocurreny exchange. Let’s call this Account B
- Locate your destination address on Account B
- Back on the Binance exchange, convert your fiat into a cryptocurrency that is supported by Account B. Binance Coin (BNB) is a good option, given the small transaction fees
- Send BNB to Account B
- Withdraw BNB from Account B
Once again, this will come with some fees, but it represents a possible workaround. In this uncertain market, it is more important than ever to keep your funds as safe as possible.
This article explained some key ways to do that, but do keep in mind that nothing in this article should be taken as official financial advice and Currency.com does not endorse any of the products mentioned.
How do I withdraw money from Celsius?
Unfortunately, for the 1.7 million depositors on Celsius, there is currently no viable way to access frozen funds. As the situation continues, Currency.com will be sure to keep you informed.
Crypto withdrawals could be suspended for numerous reasons. An exchange might place a temporary ban on certain assets because of adverse market conditions, or there could be a network outage. There is plenty of advice for protecting your crypto assets in the article above.
Binance suspended UST and LUNA withdrawals because of congestion following Terra Luna’s collapse. In the UK, Binance was prohibited from allowing fiat deposits and withdrawals until February 2022.
Some popular options include Cash App, Trust Wallet, MetaMask (for Ethereum-based tokens only), Atomic Wallet and Exodus. For added security, check out the Ledger Nano and Trezor hardware wallets. Currency.com does not endorse any of these above products. Be sure to check the reviews before buying one.
Yes, Binance explains how to withdraw from the exchange to your bank account. In the event of another ban in the UK, please note the advice in the article above.
Unfortunately, there is currently no viable way for the 1.7 million depositors on Celsius to access frozen funds.