Why you can’t cash out pt 2: Bitcoin and KYC/AML | Hacker News Reader

Why you can’t cash out pt 2: Bitcoin and KYC/AML

davidgerard.co.uk

69 pointsdavidgerard62 comments

These articles raise real problems that exist, however the negative bias + the title tip the scale towards FUD. You might have trouble cashing out. You might, like me, have no trouble at all beyond having to upload a couple of images. I think if you do some research ahead of trying to cash out, your odds are pretty good.

Agree. Same with the first article. I'm surprised he doesn't discuss some of the real problems (scaling) instead.

oh, there's plenty of series to go!

I suppose I shouldn't be surprised at crypto advocates nitpicking by going "this single topic part of a series doesn't cover this other topic I like better" or thinking a tone argument is a meaningful objection ...

David, I’m a lawyer and as others in the thread have suggested, as a lawyer I could easily facilitate the bitcoin/usd conversion and successful bank deposit process (both on and off exchange).

Do you have a idea how many people are being impacted and the overall value? Assuming an exchange like Coinbase takes 5% in a sell transaction and then the seller would owe taxes (minimum 15%) what kind of fee would someone be willing to pay for a lawyer to safely convert bitcoin and deposit their funds?

Please don't post flamebait comments here. The last thing we need is yet another low-rent crtyptocurrency flamewar.

See Part I

As with any transaction, if you're wiring in $1-10-100m (and you don't commonly transfer these amounts) then let your bank know. Much better than having it pop up unannounced -- "surprise!".

My bank makes it a bit difficult to wire large(ish) sums regardless of whether Bitcoin is involved, particularly when wiring overseas. It's just the nature of the US (maybe world) we're living in today.

I haven't had any trouble moving around the small sums I deal with in cryptocurrencies on Coinbase, and I suspect most people just dipping their toes into it won't have any issues. It's more likely to be an issue if you're dealing with large sums. $10,000 is, AFAIK, the amount that banks have to report and that's probably where things start to get a little more hair...and if you split up >$10,000 into a few transactions over a few days, they probably report that, too.

I guess Bitcoin millionaires are dealing with problems that Bitcoin thousandaires just don't experience.

Stucturing transfers to avoid reporting requirements is illegal...

But, just transferring sums that add up to $10k+ over a few days in the normal course of business is not. I've had several occasions in my life/business where I've done just that. It would be up to the government to connect that to other patterns that point to illegal activity I would think (or, your bank might grill you on it, since they've been put in the position of policing their customers). My bank has asked me why I was sending several thousand dollars a month to someone in Croatia or Russia (I've worked with contractors over a long period of time in both places), but they didn't make it particularly painful to do so, other than the large-ish money transfer fees US banks normally impose.

Merely moving money around for legal purposes is not a crime, even if it adds up to $10,000 in some specific period of time, but it might get your account flagged in some way, is what I'm trying to say.

This is so bizarre. This is a whole series on the various reasons you can’t do X, written while hundreds of thousands of people are doing X all over the world.

Seriously, I’m sitting next to someone who cashed out of cryptocurrency (yes, for USD) two days ago.

This is sour grapes to a new level.

Can you explain his process a bit? You could just be making this up.

He sold his coins on Coinbase and withdrew to his bank. Done.

Maybe the author’s post should have been “why a tiny fraction of cryptocurrency whales can’t cash out without a little research and upfront vetting” but I suspect that would have made for a terrible title. So he wrote a great title instead. It just doesn’t have the benefit of being true.

Sold a significant amount, or like 40K worth? I'm curious about people cashing about significant values and converting to USD.

If you’re cashing out more than $100,000 in crypto currency, you have the resources and the reason to hire a tax lawyer. They will, in addition to ensuring you don’t piss off the IRS, help you mollify any AML concerns.

Thanks. That's good to know. I have friends who've been surfing crypto for the past year, and they seem to a) not be worried about much, but also b) have no clue on what they're doing.

> They will, in addition to ensuring you don’t piss off the IRS, help you mollify any AML concerns.

Hmm? I'm not sure how a tax attorney would mollify any AML concerns on the exchanges. Customers have zero AML concerns, they just want their money.

I totally agree a tax attorney is a thing you need at that level. Disagree they will be helpful in any meaningful way in getting your money out of an exchange account - they are irrelevant to that process.

A good tax attorney with crypto experience should be able to direct you to a vetted and legit OTC trade desk/counterparty though. That lets you avoid the exchanges entirely.

> I'm not sure how a tax attorney would mollify any AML concerns on the exchanges

Exchanges and banks need to verify you aren’t laundering money. You want them to verify this quickly. A competent lawyer can help you prepare the necessary paperwork and, in a pinch, explain things to a bank’s or exchange’s compliance officer over the phone. That increases your credibility and in turn odds of getting approved quickly.

> compliance officer over the phone

I think this shows a bit of naivety on your part, unfortunately. No compliance officer at any public exchange is picking up the phone over a $100k customer. I'd be surprised if anyone - including 8 figure clients - can get such a person on the phone right now. I personally know of cases where 7 figures are locked up with zero way to contact a human. Typically it's so far working out in most cases I know of, but having that much tied up for 60+ days with almost no communication (attorney or not) can be a bit nerve wracking for most.

I do agree re: your point on documentation, that certainly can be helpful.

> No compliance officer at any public exchange is picking up the phone over a $100k customer

At the exchanges you may have trouble. Many of them lack proper compliance departments. There are, however, response requirements under U.S. law your attorney will be knowledgeable about.

At a bank, contacting compliance is trivial if you know how to use the relevant public databases. There are also questions about structuring, e.g. transferring the coins to a multi-member LLC and then cashing out into it, that could be relevant for one’s jurisdiction.

All that said, having documents in order is a huge plus. Incomplete AML and KYC documents tend to go to the bottom of the priority pile and top of the risk pile.

Completely agreed. I haven't seen many cases where the banks are holding funds up due to AML/KYC, so I was 100% focused on exchanges.

You're absolutely correct - when dealing with actual financial institutions just have a Real Lawyer(tm) do that for you or you're very likely to have a bad time.

How would a tax attorney help in simple cases where you're e.g. selling some BTC that you've been holding for some time? Declaring capital gains yourself isn't that hard if you keep accurate records.

Depends on how simple your case is. If you have a simple buy at X and sell at Y you are pretty much correct.

If you say - mined your coins back in 2011 - and never did any accounting of that income at that time, if you want to be able to claim capital gains vs. regular income you are going to find a pretty clued-in tax attorney to do such a thing.

Even worse if you were an early adopter and started spending coins/trading with folks back when it was all magic internet money. Did you account for those 50BTC you sent as a tip to that software dev you enjoyed? It was $100 at the time, so I doubt many people were keeping careful records.

What if you started trading on mtgox or bitstamp or whatnot 5 years ago? Did you account for all those trades as income at the time even if you never cashed out USD to your bank account?

All in all it depends on your situation.

If you're regularly selling amounts more than 25k USD worth, don't use an exchange. Try these guys, for example: https://genesistrading.com

Here is an anecdotal example of cashing out 6figures across borders. https://www.reddit.com/r/BitcoinUK/comments/7lioco/cashing_o...

This is from a US exchange to a UK bank.

If you want to start trading crypto, you need to set up a separate bank account for this before you start and go through the compliance process with the bank in advance. This can take several weeks, but if you don't go through the process before you start accumulating significant amounts of crypto then you'll never be allowed to cash out. (And also there are only a handful of banks that will allow you do this, you can't just make a new account at Chase or Wells Fargo or whatever.)

This is why almost all of the big ICOs still have the 'money' they've raised in crypto, because they didn't do KYC/AML and so they aren't allowed to sell their crypto and put the cash in a bank account. The only thing they can do is pay their employees in crypto, at which point it's the employees problem of how to cash out.

Can you explain the “never” in this assertion? Never is a strong word.

It's illegal for banks to accept deposits of money without knowing how the person depositing the money got it. And this isn't just in the US, it's in every country worldwide. This means that if you're buying crypto assets behind just a couple hundred bucks to mess around with, you're going to want to work with a compliance officer, where every time you buy something you send them an email explaining exactly what you bought and how much you paid for it.

Basically if you put a hundred bucks in Coinbase and you end up with a few thousand bucks then you're not going to run into any issues. But if try to drop $20M into a bank account they're going to tell you to get fucked.

>As I detail in chapter 8 of the book, I’m pretty sure this is how the 2017 crypto bubble was kicked off — when people couldn’t get US dollars off Bitfinex, so they bought Bitcoin and other cryptos to withdraw, pushing the price up.

How does that make sense? If you sold some crypto for fiat, realize you can't cash out, then buy back the crypto you just sold, isn't the effect on supply/demand net 0? I guess the only consequence is inadvertent wash trading, but I doubt that has a huge effect on the markets unless you're insane and are doing it over and over again, expecting something to change.

I think he just needed a place to peg his own book.

The mechanism is:

1. Users have a USD account and a BTC account. They can’t sell their bitcoins and withdraw their cash, but they can buy more bitcoins using their newly-topped-up USD account – which contains trapped “dollars” which can’t be used for anything else. Think of it as a Bitfinex “USD” token, not as actual US dollars – Disneyland fun-money which can only be spent inside the theme park. The price goes up. In April, BTC on Bitfinex was often $200 higher than elsewhere.

2. With the higher price on Bitfinex, traders arbitrage by buying coins on an exchange with a lower price and selling them on Bitfinex. (Note that the USD from the sale is stuck on Bitfinex.) This raises the price on the other exchanges.

3. Expectations rise, the price gets mainstream press and more people get into Bitcoin. The bubble inflates.

This works precisely because you can’t get your money out – and other exchanges were also having problems with US dollar withdrawals. Users were reluctant to remove their BTC from Bitfinex because the “price” was highest there (even if unrealisable) and because they loved it as a trading platform.

The trapped “USD” tokens also got used to buy other cryptocurrencies – the price of altcoins tends to rise and fall with the price of bitcoins – and this fueled new ICOs, as people desperately looked for somewhere to put their unspendable “dollars.” This got Ethereum and ICOs into the bubble as well.

FWIW, I described this to Phil Potter from Bitfinex and he thought it was plausible. I don't think they intended a bubble to start, but I do think that's what kicked it off.

I'm not sure if the “USD” were Tethers at this stage, or just funbux trapped there.

It's an unintentional side pocket. Hedge funds do this to avoid runs on the main fund when assets can't be priced, bitcoin exchanges have inadvertently stumbled on the model due to interface problems with the mainline banking industry.

>1. Users have a USD account and a BTC account. They can’t sell their bitcoins and withdraw their cash, but they can buy more bitcoins using their newly-topped-up USD account – which contains trapped “dollars” which can’t be used for anything else.

that doesn't really address my question. the USD have to have come from somewhere, and in both case, it's either natural demand (from people wanting to buy BTC), or a net zero effect (from selling, then subsequently buying).

These were dollars they had deposited before April and couldn't get out again.

Yeah, but weren't they intending to buy crypto (why else would you deposit money into an exchange)? The only effect I can see here is people not being able to back out after getting cold feet.

Not all banks are opposed to Bitcoin. Some banks even offer integration with Coinbase so that you can see your Bitcoin transactions in their banking interface: https://blog.coinbase.com/usaa-expands-coinbase-integration-...

I was give 0.5 BTC at a hackathon run by an Irish bank (Ulster Bank) a few years ago. I guess when I cash out, I'll cash out with them!

you can only bank at USAA if you are a US federal government employee or current/former armed forces. which is fascinating that they are one of the most supportive banks of the US with Bitcoin.

Bullshit, you can find a Bitcoin friendly financial organization that knows how to make the whole process easier. In the worst case you can use LocalBitcoins.

We have used services like Bitex[1] and the exchange process work like a charm after the, obviously slow, onboarding process (e.g. paperwork).

[1] https://bitex.la

I know of one such case where the user had sold a car for bitcoins years ago, and wanted to cash in on the current bubble. The best the exchange could come up with was sending it in daily in amounts of several thousand dollars

Are all Bitcoin exchanges like this?

I'd be very distraught if someone wouldn't allow me to withdraw my full balance.

It's all based on your level of verification with the exchange. At the maximum (level 4) verification on Kraken you are limited to $100,000 withdrawal per day or $500,000 per month. So while he still wouldn't be able to withdraw the full amount at once, it is not nearly as bad as the author makes it sound.

Lots of people can cash out, but really, lots of people can't. Money suspended in mid-air from Coinbase for an indefinite length of time is becoming a standard consumer experience.

Perhaps retail investors shouldn't go near bitcoin, in which case I completely agree.

I'd love to know what proportion of transfers from Coinbase end up stuck in mid-air; I did ask them, but of course they haven't time to answer email from some blogger.

FWIW, many of my friends cash out from Coinbase and GDAX regularly. I have heard of occassional delays but nothing like "you can't cash out."

(Looks like about 3 days processing time from usual 1 day now for wires due to sudden spike of users: https://status.coinbase.com/)

We're not talking about "cash out" as in few thousands of dollars. we're talking about the hundreds of thousands or millions that some "Investors" are sitting on.

What do you think would motivate them to tell you about their successes and paint a giant hacker target on their backs?

Thats nonsense, absolutely.

They use an OTC broker like genesis or cumberland (DWR).

Can easily sell up to 100 mio and receive it in cash the next day.

Assuming you are the author, how is it that your title is "Why you can't cash out", yet you write "Lots of people can cash out"?

Can you clarify who is being referred to by "you"? At first it would seem to be "everyone", but that is clearly not what you mean.

"you" is the "you" in particular who is having problems. I've found this has been pretty clear for pretty much everyone who isn't a cryptocurrency advocate, fwiw. I note at the end: "It’s nice if you had no trouble yourself, but 'I’m all right Jack' is not the attitude for this series of posts."

I'm finding more and more reports just from normal people who foolishly tried cryptos to see how this all works. Latest is Rory Cellan-Jones, who happens to be writing it up in his capacity as a BBC journalist: http://www.bbc.co.uk/news/technology-42454876 - I'm sure he'll be documenting the "transaction suspended in mid-air" experience in detail, to Coinbase's delight.

> '"you" is the "you" in particular who is having problems.'

Thanks, do you have any insight into what characteristics the people who are having problems may share?

From your link:

>"In theory that is simple enough and indeed I have sold £500 worth for a small fee. But actually getting that cash into my sterling bank account is far from seamless - so far I am a week in to what promises to be a two-week process."

It sounds like 1-2 weeks is what you should expect from coinbase:

>"When you place a sell order or withdraw USD to a US bank account, the money usually arrives within 4-6 business days." https://support.coinbase.com/customer/en/portal/articles/139...

This is ridiculous. I’ve read hundreds of stories about people who have had issues with Coinbase. I’m sure they’re the tip of the iceberg and there are actually thousands or even hundreds of thousands having issues.

But Coinbase has many tens of millions of users, so it’s still probably a small fraction. And by your own admission, you have no idea, so stating that it’s “the standard experience” is just more anti-cryptocurrency FUD like your article series.

EDIT: it’s actually 13 million as of Dec 1. The point stands: 100,000 users having issues is still less than 1%.

Forums are always full of people who complain. These days, the rare person who bothers to say their experience was fine is immediately branded an astroturfer or shill.

I hate those kinds of people. Obviously they're funded by the Koch brothers. Anyone who disagrees with me is a neonazi. Also this is all a Ponzi scheme.

Literally any bank having 100,000 fucked-over customers would consider it - or be made to consider it - an issue, and any reasonable person would consider it a matter of tremendous concern.

Would you consider it a matter of no concern if it was your bank, rather than something bitcoin-related?

Unfortunately I thought the same thing, and paid for giving out your exact advice. Kraken has a hidden $50k/100k/yr limit even if you are verified at level 4. Be exceedingly careful not to rely on an exchange's publicly published limits because they are universally incorrect for US customers.

"Thanks for bringing this to our attention. We realize that your transaction couldn't be processed by our wire processor since you had exceeded your current annual USD transfer limit of $50,000. Since you seem to be interested in withdrawing or depositing large amounts of USD, we would like to see if we can do anything to help make your Kraken experience any better. You may provide us proof of source of funds document(PoSoF) to have these limits to $100,000 on a daily/monthly/annual basis."

(sorry, HN's quoting is horrible)

Basically the tldr is if you are a US customer there is a $100k annual US wire withdrawal limit, but no annual deposit limit. The above was sent to a L4 verified customer. You will find many other exchanges have other "hidden" limits you will trigger as you attempt to bring money into the US. This includes coinbase/GDAX, and is seemingly almost random. Even Bitstamp will stop sending you wires after a certain amount of time and require an invasive level of documentation such as tax returns.

The good news is for people liquidating large amounts of Bitcoin you can get approved on an OTC desk like Cumberland or Gemini which have zero problems doing 10x the amount in single transactions. This does require a bit more human vetting of you though, and you better have zero reputational concerns on google/etc.

Edit: I don't entirely blame them - if they could, they wouldn't care in the least about KYC/AML laws. They are simply attempting to keep their businesses from being locked out of the US financial system. Ironically this exact kind of "your money isn't really your money unless we tell you it is" stuff is the reason I first got into Bitcoin. I've seen more money outright stolen by banks than I have criminals.

KYC/AML is going to be the biggest bone of contention going forward. Given the rising complexity of online transfers lot of countries are now rolling out laws which require banks to track source of funds. Any transfers which happen outside known sources is promptly reported to government authorities.

Then there are transfers from high risk companies. Coinbase seems to be one of them. With the bitcoin prices going through the roof, IRS and DHS will be keenly interested in the flow of money.

Contact your bank first. Be prepared to provide the full history of every crypto you’ve ever touched and where the money for it came from. Be prepared to give enough information to your tax office that they could reconstruct you from a nail clipping. If it’s any substantial sum, get a proper accountant.

Exchanges, at least in countries like the US, could add a lot of value by offering IRS- and KYC/AML-friendly transaction history reports.

all the more reason for me to use Bitcoin as a store of value and other cryptocurrencies for quick anonymous payments ( DASH, monero, zcash )

Cryptocurrencies' weakest link are the exchangers. There is a greater than zero chance that a well known US exchanger will have their US offices raided by authorities in 2018-19 after a terror attack of some sort will be linked to cryptocurrency financing, whether true or not. Assets would then be seized indefinitely. If Bitcoin fails, it will be because of the exchangers.

For this reason (and others), do not ever store your coins in an exchange wallet.

The other side of it is that it wouldn't be at $15000 without exchange buyers.

If you have cryptocurrencies, you should set up accounts on exchanges well in advance, and request substantial limit increases. Also, don't keep a balance you're on actively trading with on exchanges.

"But what happens when a fourth use of money is introduced, one which subordinates all the other characteristics: money as a system of control?"

https://www.youtube.com/watch?v=FyK4P7ZdOK8&t=382s

These sensationalist articles serve as indirect spam for OP's 180-pg book on Amazon. Millions of people are transacting in crypto (including trading for national currencies) every day.

Bitcoin is trading on the CBOE/CME now for heaven's sake. Please apply your talents to something more constructive.

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