Binance US has announced the withdrawal of FDIC insurance coverage for users’ cryptocurrency holdings, marking a policy shift that necessitates the conversion of U.S. dollars to stablecoins or other cryptocurrencies before withdrawal.
Insurance Policy Update
In an email sent to its users today, Binance US revealed that the exchange had made changes to its terms of service related to deposit insurance. These modifications come in response to guidance from the Federal Deposit Insurance Corporation (FDIC). The prior terms of service had assured users that Binance US accounts were insured up to $250,000, as outlined in a 2019 blog post that has since been removed.
That post had stated that “all USD deposits are held in pooled custodial accounts at multiple banks that are insured by the FDIC,” and these accounts were structured to grant access to pass-through FDIC insurance coverage, up to the depositor’s coverage limit.
The FDIC, a U.S. government agency formed in 1933 during the Great Depression, was created to protect the financial interests of American citizens, allowing them to recover a certain amount of money in the event of a bank collapse.
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Changes In Insurance and Withdrawal Process
Binance US’s revised terms of service unequivocally state, “Your accounts and digital assets are not eligible for FDIC insurance protections.” Moreover, the updated terms specify that U.S. dollars cannot be withdrawn directly but must first be converted into stablecoins or another cryptocurrency.
A stablecoin is a type of cryptocurrency pegged to the value of a fiat currency. Examples of widely recognized USD-denominated stablecoins include Tether’s USDT and Circle’s USDC. This policy alteration aligns with the FDIC’s recent advisory that funds deposited with a “crypto-based financial services provider” are not covered by FDIC insurance. The FDIC explicitly emphasized the lack of insurance for cryptocurrency deposits and advised individuals to recognize this fact.
The timing of this change by Binance US is noteworthy, coming soon after the FDIC’s warning and following the Federal Trade Commission’s charges against Stephen Ehrlich, former CEO of now-defunct crypto broker Voyager Digital. Ehrlich was accused of falsely asserting FDIC insurance coverage for customer accounts, and he is now facing legal actions from the Commodities and Futures Trading Commission, which charged him with fraud and registration failures.
The Impact of Regulatory Changes on Binance US
With these adjustments, Binance US is reflecting the evolving landscape of regulations and financial safeguards in the cryptocurrency industry. Users are now required to adhere to the revised terms when it comes to insurance and the withdrawal process.