This is a PSA on how to tell your crypto exchange is in trouble.
The exchange used here as the poster child will be Bittrex, but I dare say some of the issues listed here might be very familiar to 2020 crypto traders as well.
Bittrex requires KYC/AML since 2019. Having been operational since 2014, it was a long journey to compliance though.
Withdrawal Limits, Changes in TOS
Bittrex started off by letting users trade crypto unverified back in the wild days of 2014.
The first limitation implemented was a withdrawal limit on non-KYC traders. When a non-KYC exchange actively tries to block money of their users to keep much of it in the exchange wallets, it’s always a sign of something going wrong.
It could be preparation for exit scam, it could be collecting money to pay off legal fees (not much difference there).
The best user policy to that date was to not depositing money above current verification level, which failed everyone in 2017. The allowed levels were set in USD, but the valuation of crypto shot up like crazy that year.
Locking up customer funds
As soon as Bittrex started playing with their account limitation settings, masses of people started turning to customer support - and never got any answer.
There were problems with money locked up, accounts disabled for no reason and of course the classic no response from customer service for months at a time.
Redditors reported many cases of what some call “the kyc scam”:
- Traders are allowed to sign up and start trading with no KYC/AML.
- At some point the terms of use on the exchange change.
- Once the trader collects profits and requests withdrawal, their account is blocked and strict KYC required.
Prioritising Brand Damage Control
On Friday Dec 1 2017, Bittrex representative u/jyap reached out to the admins of the r/bittrex subreddit and demanded it to be closed down or set to private.
The r/bittrex admin u/keroncyst refused to hand over the subreddit.
Bittrex threatened to sue.
The subreddit was an unofficial one, set up by concerned Bittrex users who could not get hold of a customer support representative. And there were many…
Bittrex did not issue any comments on the situation, nobody addressed the issue. People who complied with KYC requests did not get any response from staff for months.
Traders were understandably fearing exit scam or bankruptcy – as always, when the platform doesn’t provide public statements, people expect the worst.
The Bittrex subreddit was eventually handed over to official exchange representatives.
But even under the unofficial moderation it was not a scary place full of desperate bullying though. Nobody even offered bribes to customer support representatives, folklore known from other exchange subreddits. People were actually very well behaved, collecting information on how to get their KYC tickets solved.
Bittrex still prioritised brand damage control to solving customer tickets though.
The issue with that was pretty clear, especially in 2017: With crypto in a locked exchange account, the trader loses out on potential profits. Because nobody can trade those founds. Except of course the exchange, purely hypothetically.
Be mindful of risks
Since BitMEX started requiring KYC in mid 2020, crypto traders have been on a hunt for the next non-KYC place with perps and defi shitcoins.
There is a new crop of shady places like ByBit (who btw don’t pay their affiliates in case that’s your jam), WhiteBit, Latoken and others. Hell, even Bitfinex could get in trouble.
Consider how and why red flags exist and when is the time run.