Binance’s American entity has recently informed its users that their cryptocurrency holdings with the exchange are no longer FDIC-insured. This update comes as Binance US adjusted the deposit insurance language in its terms of service, citing guidance from the Federal Deposit Insurance Corporation (FDIC). In 2019, Binance US initially announced that user accounts were insured for up to $250,000. They stated that all USD deposits are held in pooled custodial accounts at multiple banks that are FDIC-insured.
Binance US clarifies its stance on deposits
The custodial accounts were structured to provide pass-through FDIC insurance coverage up to the $250,000 depositor limit. The FDIC, established in 1933 during the Great Depression, was created to protect Americans from losing their money if their banks were to collapse. This government entity ensured that deposits were safe up to a certain amount. However, the updated terms of service from Binance US now clearly state that accounts and digital assets are not eligible for FDIC insurance protections. This means that users’ assets and accounts on the platform are no longer covered by FDIC insurance, leaving them without this level of protection.
Furthermore, the update reveals that users will no longer be able to withdraw U.S. dollars directly from their Binance US accounts. Instead, they must first convert these dollars into stablecoins or another cryptocurrency. Stablecoins are cryptocurrencies that are pegged to a fiat currency, with popular USD-denominated stablecoins including Tether’s USDT and Circle’s USDC. This change in policy by Binance US aligns with a recent warning from the FDIC. The FDIC issued a statement cautioning individuals that money deposited with a “crypto-based financial services provider” is not FDIC-insured or protected.
Regulatory moves and its impact on the crypto market
In essence, this means that the government does not have an obligation to step in and help recover funds in the event of a crisis or loss. The FDIC’s statement noted that crypto deposits are not FDIC-insured. This serves as a stark reminder to users that their cryptocurrency holdings are inherently riskier than traditional bank deposits. In a related development, the Federal Trade Commission (FTC) took legal action against Stephen Ehrlich, the former CEO of Voyager Digital, a crypto broker that ultimately collapsed. Ehrlich was charged with falsely claiming that customer accounts were FDIC-insured, misrepresenting the level of protection offered to clients.
Additionally, the Commodities and Futures Trading Commission (CFTC) levied charges against Ehrlich, accusing him of fraud and registration failures. The CFTC’s statement highlighted that Ehrlich and Voyager Digital had promoted their platform as a “safe haven” for high-yield returns, enticing customers to purchase and store digital asset commodities. These recent developments in the cryptocurrency space underscore the importance of understanding the risks associated with storing and trading digital assets. Users should be aware that the regulatory landscape for crypto is still evolving.
This means that traditional safeguards, such as FDIC insurance, may not apply to their investments in the same way they do with conventional bank accounts. As a result, it is crucial for individuals involved in the crypto market to exercise caution, conduct due diligence, and stay informed about changes in policy and regulations that can impact the security of their digital assets. Cryptocurrency investors should be prepared for a higher degree of risk and take steps to protect their holdings accordingly.
