Huobi Bans United States Users Following Poloniex, Binance, Bittrex Bans; Forcing Traders to Use Venues With Less Reputation, Lower Liquidity, Lack of Variety, and Zero Anonymity

November 5, 2019 / by Zachary Mashiach

This announcement follows a similar bHuobi, a top cryptocurrency exchange that often has over $1 billion of volume per day, has announced that United States users are strictly prohibited from using their platform due to laws and regulations, and that United States user’s accounts have gradually been disabled to prevent any further trading. On November 13 all United States user’s accounts on Huobi will be frozen, meaning it will become a difficult task at that point to even withdraw. 

The ban from Binance that became effective in September, which was a major blow to traders in the United States, since Binance was perhaps the most popular venue to trade a large variety of cryptocurrencies anonymously and in a high liquidity environment.

Additionally, Poloniex, which used to be one of the most popular exchanges for trading cryptocurrency in the United States, has announced that all United States users will be banned as of November 1. This is perhaps surprising since Poloniex was based in the United States. Now Poloniex is changing its name to Polo Digital Assets and leaving the country. 

Another exchange that used to be among the most popular in the United States, Bittrex, banned United States users from trading 74 different cryptocurrencies, presumably cryptocurrencies which can be considered securities.  

There are still some exchanges left that allow United States residents, such as Kraken and KuCoin and perhaps others listed on CoinMarketCap. The trend is clear however, United States regulators are one by one forcing exchanges to ban United States residents. It seems regulators have begun their attack by focusing on the most reputable and popular exchanges used by United States residents, but it can be assumed that all exchanges that offer cryptocurrencies that can be considered securities, or offer margin trading, or lack proper know your customer (KYC) and anti-money laundering (AML) regulations will eventually be banned in the United States. 

Long term, and perhaps even not so long from now, it is likely that United States cryptocurrency traders will not be able to trade anywhere anonymously, only venues that do proper KYC/AML and report taxes to the internal revenue service (IRS). 

Even Localbitcoins is no longer an option for anonymous peer to peer cash trading, following the ban on the local cash option earlier this year. 

A good example of the way cryptocurrency exchanges will function in the United States under the new regulations is HBUS and Binance US, which are the spinoffs of Huobi and Binance that United States users are allowed to use. HBUS and Binance US each offer about 20 different cryptocurrencies, versus the hundreds of cryptocurrencies available on regular Huobi and Binance. Also, HBUS has practically no liquidity with trading volume below $100,000 per day, and Binance US is not much better with less than $10 million of volume per day. 

Essentially, with all cryptocurrencies which can be considered securities being outlawed on regulated platforms, and most of the rest of the world still using the regular versions of Binance and Huobi which have far more variety, United States traders are forced to use exchanges that have practically no liquidity or variety. 

The lack of liquidity makes trading much slower and far less optimal. The liquidity is so low on Binance US and HBUS that institutional trading is not even possible since big orders would cause the markets to crash or rally, causing losses for institutional investors. Even for regular traders, trades are slower to execute and the price is not optimal. 

An option with higher liquidity is Coinbase Pro, which often has over $100 million of volume per day, but just like HBUS and Binance US, only about 20 cryptocurrencies are available. Also, the over $100 million of volume per day is an order of magnitude less than the around $1 billion of volume per day on regular Huobi and Binance, meaning Coinbase Pro has only about 10% of the liquidity of regular Huobi and Binance. 

Additionally, these platforms do not allow anonymous trading and often report taxes to the IRS on the user’s behalf, making them far less attractive for traders. 

Ultimately, the sudden banning of United States residents from popular and reputable exchanges will diminish the cryptocurrency trading industry in the United States. It is likely that many traders have simply given up on trading rather than using the platforms which are now available that offer zero anonymity while having low liquidity and lack of variety. 

Also, this makes it difficult for residents in the United States to purchase all but a couple of dozen cryptocurrencies. This drastically decreases the ability of United States residents to truly participate in the altcoin market and also takes away a large amount of demand from the altcoin market. This likely explains most of the rise in the Bitcoin (BTC) dominance percentage seen since April, from 50% to 67.5%, as altcoin prices decline due to demand being cutoff in the United States, and United States residents generally choosing Bitcoin (BTC) since options are much more limited now. 

Unfortunately for United States residents, it seems the wild west days of cryptocurrency trading will soon be over, and all that will remain is a remnant of the variety, opportunities, and excitement of the altcoin market.