Week In Crypto: Circle Retail Account Closures Spark Redemption Fears

November 3, 2023
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Circle scraps stablecoin accounts for retail customers, the UK issues a warning to Bitfinex, Tether’s sister company, and Spain looks to bring in the EU’s MiCA regulation six months early.

Circle scraps stablecoin accounts for retail customers, the UK issues a warning to Bitfinex, Tether’s sister company, and Spain looks to bring in the EU’s MiCA regulation six months early.

Stablecoin issuer Circle confirmed this week that it will close all of its retail accounts on November 30, 2023.

In an email to customers, Circle said that after a strategic review, the company has come to the decision that it will no longer support “consumer-only” accounts.

“We will discontinue wiring and minting functionalities,” it said. “This action is consistent with Circle’s specific terms found within our applicable legal agreement.”

The account closures do not affect institutional customers, who can continue to use the Circle platform to mint and redeem both USDC and EURC, Circle’s euro-backed stablecoin.

Circle’s decision to cut off retail users was met by criticism from some crypto observers, who warned that Circle is drifting towards the opaque redemptions policy of Tether, its main rival.

In response, Circle said it had already stated its intention to phase out retail accounts as early as September 2021, and this week’s announcement is simply the final step in that process.

Jeremy Allaire, CEO of Circle, also downplayed the criticism, saying that “only a few thousand accounts” will be closed as a result.

“We haven't allowed individuals to open Circle accounts in years, and have been institution-only for years,” he said.

“We have tremendous retail partners all around the world, including our strategic partner Coinbase, who offers excellent retail access to USDC without fees and always 1:1.”

However, a look at Coinbase’s User Agreement leaves room for doubt as to the ease and reliability of USDC redemptions.

“Coinbase is not the issuer of USDC, does not hold reserves for USDC, and has no obligation to repurchase your USDC for USD,” it says.

Circle v Tether liquidity wars

Bitfinexed, an anonymous crypto and financial crime researcher, offered another reason for why Circle may wish to tighten up the USDC redemption process.

“Circle is shutting down redemptions for ‘consumer’ accounts to stop their accounts from being bled dry by Tether bros,” he said.

“The problem now is that Tether bros will make an endless supply of shell companies and then become ‘institutionalised’ redeemers.

“USDC will then be forced to turn off all redemptions, destroying the product,” he added. “The whole point of stablecoins is redeemability for dollars.”

Last week, as covered by Vixio, a US senator urged the Department of Justice (DOJ) to reach a decision on charging Tether with sanctions evasion and terrorist financing offences.

Concerns over the legality of Tether are long standing in the crypto industry, and over time this had led to a preference for Circle’s USDC, particularly at the point of redemption.

Last year, for example, in an interview with Protocol.com, Binance CEO Changpeng Zhao referred to Tether as a “black box”.

Despite being one of Tether’s largest customers, he also revealed that Binance does not have a commercial agreement with Tether.

“We didn't feel comfortable [that Tether] always guaranteed a one-to-one conversion,” he said.

Sam Bankman-Fried, former CEO of FTX, also described redeeming from Tether as a “messy process”, in comparison to the “more straightforward process” of redeeming from Circle.

Bitfinex placed on FCA warning list

In other Tether-related news, this week the UK Financial Conduct Authority (FCA) placed Bitfinex, a crypto exchange owned by Tether’s parent company, on its Warning List.

The FCA said Bitfinex may be promoting financial services or products in the UK without the regulator’s permission, and urged consumers to “avoid dealing with this firm”.

As covered by Vixio, the FCA’s new crypto-asset promotion rules came into effect on October 8.

Prior to the deadline, Bitfinex said in a blog post that it intends to comply with the rules, and that it will disable certain features for UK customers to do so.

For example, account verification for retail customers has now been suspended. This means that both new users and existing unverified users cannot deposit or withdraw fiat currency from the exchange.

In addition, Bitfinex has geoblocked UK users from accessing certain product pages, and it has added a disclaimer on its sign-up page, noting that crypto-assets are “high-risk” and users are “unlikely to be protected” if something goes wrong.

The FCA did not specify which of the promotion rules Bitfinex may have violated, but Bitfinex said it is “committed” to ensuring it operates in compliance with applicable laws and regulations in the UK.

MiCA comes early for crypto firms in Spain

Spain’s Ministry of Economic Affairs and Digital Transformation has announced that it will shorten the final deadline for compliance with the EU’s Markets in Crypto-Assets (MiCA) regulation by six months.

The move means that all MiCA provisions will be in effect in Spain in December 2025, ahead of the general deadline of July 2026.

As noted by the ministry, EU member states are permitted to set their own timeframe for the full application of MiCA, as long as it falls within the July 2026 general deadline.

In Spain, the ministry said it began an 18-month transitional period in June this year after MiCA was first adopted.

During this period, the European Securities and Markets Association (ESMA) will approve further technical standards for the development of MiCA.

In the subsequent year, Spain’s National Securities Market Commission (CNMV) will begin to grant licences to firms that wish to operate as crypto-asset service providers (CASPs) under MiCA.

Different rules apply to stablecoin operators, and these will come into effect in 2025.

In March, in the Securities Markets and Investment Services Law, Spanish lawmakers designated the CNMV and the Bank of Spain as national regulators for the application of MiCA.

In the past 18 months, several major crypto exchanges have registered with the Bank of Spain under anti-money laundering (AML) rules, including BinanceCoinbaseKraken and Bitstamp.

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