LocalBitcoins Drops In-Person Cash Support for Bitcoin Trading, Could Get Left Behind by Rival
- Peer-to-peer (P2P) crypto exchange, LocalBitcoins decided to stop providing in-person cash trades for Bitcoin.
- Competitor exchanges are now planning to pick up the profits that LocalBitcoins formerly collected.
LocalBitcoins provides trading opportunities for consumers, but they recently made some subtle changes that some traders are not quite on board with. On June 1, 2019, a Reddit user noticed that LocalBitcoins decided to no longer support the in-person cash trades for Bitcoin.
Adhering To New Regulatory And KYC Requirements
Within two days, the platform explained that the new regulatory requirements they have to adhere to, along with the new Know Your Customer (KYC) protocols that were implemented at the beginning of May.
LocalBitcoins was originally created in June 2012, and it has been one of the longest-running platforms in the industry. Unlike centralized cryptoasset exchanges, the platform provides decentralized services that connect multiple people who want to engage in trading with each other. In a sense, it is like a crypto-focused version of Craigslist or eBay but with trading.
Still, the process was not really a surprise. In fact, on May 9, 2018, the company announced an upcoming change to the terms of service, following the General Data Protection Regulation (GDPR), which was in regard to data protection and privacy. Several weeks later, LocalBitcoins users started being asked for their ID verification, being required to meet the 16-year old age requirement, and only being allowed to keep one account per person.
Iranian Residents Prevented From Using LocalBitcoins
About a year later, LocalBitcoins states that they would fall under the supervision of the Financial Supervisory Authority (FSA), pending the new legislation by the Finnish parliament. Furthermore, at the same time, users in Iran were suddenly banned from using the service, which was likely a move that happened as a result of the US’s newly imposed sanctions against the region.
As a result of this lack of Bitcoin support, there are many traders that have left the exchange behind, seeking out other options for cash trading. Instead of continuing to work with LocalBitcoins, there are many rival P2P exchanges that have accepted these traders into their own exchanges since June 1.
“All The Cash Refugees Are Flooding To Paxful”
CEO of P2P Paxful, Ray Youssef, explained that the volume of cash offers through their platform has risen by 200%. He even called the dwindling exchange “RemoteBitcoins” instead, saying, “all the cash refugees are flooding to Paxful.” Cash offers for Paxful “have swelled up,” which has led the platform to work harder to make them all possible. A privacy-focused exchange for P2P transactions, LiberalCoins, noticed that there were 38% more users for their platform.
LocalEthereum Experiencing Increased Activity
There are some traders that want to make cash trades so desperately that some are using Ethereum instead. The CEO of LocalEthereum, Michael Foster, said that he saw an increase of 26x the typical cash trades on his exchange, rising from 0.6% to 16% within the last few days.
According to Foster, many traders gravitate towards the use of cash trading because it cannot be reversed. Compared to other methods that create the potential for chargeback fraud, cash trading is simply a cleaner transaction. Foster added,
“It’s also a long-running tradition to buy and sell crypto in person.”
For now, the competitors of LocalBitcoins are having a good day. However, considering that the regulatory pressure led LocalBitcoins to restrict their cash trading, how long will it take for the pressure to get to these other exchanges as well?
Trades Involving Cash To Be Banned Completely?
A representative with Hodl Hodl noted that they will keep their privacy for users, adding that they would “rather shut down and stop operations” that succumb to the KYC and AML protocols. The representative added,
“here's simply no market for a P2P exchange that does KYC/AML. The only reason LocalBitcoins is still making money is because the majority of their volume is from jurisdictions where the KYC/AML info that users provide is not yet affecting said users.”
There is still a chance that cash trading will completely banned from P2P transactions in the future. The Hodl Hodl spokesperson added that their exchange has good odds of being allowed to operate, because they don’t hold cryptocurrency or fiat currency, being noncustodial.