Introduction
Centralized crypto exchanges such as Binance, Coinbase, Houbi, and Kraken may freeze your account (crypto trading account) without warning. It makes it impossible to withdraw your crypto assets from the exchange. This blog post examines the causes of frozen funds, how to avoid them, and what to do if an exchange freezes your funds.
Freezing your crypto trading account implies that you cannot make standard transactions such as trading and withdrawal.
It may require your input to “unfreeze” the account and sometimes, it can be a precursor to the closure of the account. In any case, the doors to an appeal are always open to unfreeze your account and get your funds out.
Let’s find out why an exchange may freeze your account and then the steps you can take if you have frozen funds in an exchange.
Reasons Exchanges such as Binance, Coinbase, Houbi, etc. may freeze your crypto trading Account
1. Participating in “Pumps and Dumps” Schemes
Pumps and Dumps are considered illegal by major exchanges. Pumps and dumps schemes are made up of groups of traders who artificially create a buying frenzy usually of low cap. tokens The goal is to momentarily increase the price of the token (“pump”) and then “dump” on unsuspecting participants; leading to huge financial losses.
Most reputable exchanges will discourage pumps and dumps on their platform and will freeze the account of the perpetrators. Binance Exchange explicitly prohibits “Pumps and Dumps’ in her terms of use.
3. You agree not to use the services for market manipulation (such as pump and dump schemes, wash trading, self-trading, front running, quote stuffing, and spoofing or layering, regardless of whether prohibited by law);Binance Service Usage Guideline , Section Under Restriction b.3
Your account may be frozen if you actively participate and profit from Pump-and-Dump schemes.
2. Incomplete, Outdated, or Misleading KYC Documentation
Most major crypto exchanges will work within the regulatory framework of the region they operate and often that will mean they implement a “Know-Your-Customer” or KYC procedure for every client they onboard.
KYC documentation is a requirement in most exchanges. You have to submit a valid means of Identification such as a Government ID. Also, Address verification documents and sometimes, the Source of funds. Your account could be “frozen” if at any time any of these is found to be fraudulent or misleading.
Sometimes, a crypto exchange may freeze your account if your initial KYC documents are out-of-date. Also, if the pattern of your transaction has changed significantly.
3. You Received Funds Funds From A Blacklisted Source or Wallet Address.
You could have your trading account frozen or suspended if you receive funds from a blacklisted wallet such as those linked to a hack. Sometimes, it may not be directly but as long as they are “dirty bitcoins or crypto”. It is the reason most hackers do not sell the proceeds of their illegal craft in centralized exchanges.
Avoid purchasing your crypto from questionable sources and attempting to sell it on centralized exchanges. Your account will likely be frozen if those funds are already blacklisted.
Different crypto communities can blacklist a wallet, even the government, receiving funds from such wallets puts you at risk. (You can find some resources on blacklisting at https://cryptodefendersalliance.com/blacklist
4. You Are the Subject of an Investigation
You can have your account frozen if you are the subject of an investigation, especially if public knowledge and of the common good.
5. Suspicion of Illegal Activities Such As Money Laundry, Criminal Activities
Laws and Regulations require exchanges to report suspicious activities to Regulatory bodies like the SEC in the US. If you are under suspicion of using your trading account to funnel funds for illegal activities drug deals, terrorism, trafficking, or weapon sales.
6. By Government Order or Regulatory Authorities
The funds in your account can be frozen based on the instruction of the Regulatory Bodies or the Government. -Usually when you are the subject of an ongoing investigation. Tax evasion can be another reason.
7. By A Court Order
A crypto exchange will have your account frozen if there is a Court Order (from a court of competent jurisdiction) to that effect. They are obliged to obey such orders especially if you live in a highly regulated environment.
Sometimes, your account may been part of a Government effort to track illegal activities. Your wallet may have received funds from suspicious sources or individuals under investigation. A court order may be in effect to trace such funds and the exchange must oblige such requests.
8. You Are Under-Aged
Binance and other major exchanges have a legal limitation for owning an account with them to be 18 years and above.
If you registered for an account and were later discovered that you are below the legal age to enter into a contractual agreement. It is enough ground to freeze your account (and subsequently close it)
By registering to use a Binance Account, you represent and warrant that:
(i) as an individual, you are at least 18 or are of legal age to form a binding contract under applicable laws;
(ii) as an individual, legal person, or other organization, you have full legal capacity and sufficient authorizations to enter into these Terms;Binance Terms of Use – Elegibility
Binance terms of service
9. Using Bots, Scripts, and Hacking Tools that can Compromise the Exchange
Binance specifically mentioned this in her terms of service. – Any activities that seek to gain access to information on the platform that is not publicly accessible are a threat. They can suspend your account for this or freeze your funds.
6. You may not
(i) use any deep linking, web crawlers, bots, spiders or other automatic devices, programs, scripts, algorithms or methods, or any similar or equivalent manual processes to access, obtain, copy or monitor any part of the properties, or replicate or bypass the navigational structure or presentation of Binance Services in any way, in order to obtain or attempt to obtain any materials, documents or information in any manner not purposely provided through Binance ServicesTerms of Service. Binance.com
Binance terms of service
10. Your Trading Volume Increased Significantly
Additional KYC is often required for certain thresholds on your trading account and temporarily freezing your account might be a way to push you to comply with your new trading threshold. For example, if you trade institutional size on a retail account.
What To Do When An Exchange Freezes Your Funds
If an exchange freezes your funds, often they will indicate why they are doing so. The action you take will depend on the reason for them withholding your funds.
Some exchanges can be vague about this, you will need to seek clarification from their support channel. Some actions you can take to get your funds back may include one or a combination of actions below;
1. Contact Customer Support
This is usually your first action immediately you cannot access your funds. Most good exchanges should give you a reply between 20-48 hours. They may include reasons for the restriction and the action you need to take. Sometimes, they may have wrongly frozen your account.
2. Complete Your KYC With Valid Documents
You may have to redo or upgrade your account with recent documents such as Valid ID, Proof of Residence, and Proof of Funds. This usually will resolve restrictions due to an increase in the volume of transactions.
Proper KYC verification is key to overcoming many funds restrictions on crypto exchanges.
3. Remove Bots and Scripts Connected to Your Account
Sometimes, an exchange may consider any Bot (trading bots for example) as a potential threat to their system. Their security system may flag your account as potentially dangerous. Disconnect such services or bots from your account and then appeal for a review of the restriction on your account.
4. Use the Social Media Handles
If an exchange has frozen your funds unjustly or without a good cause, sometimes, presenting your appeal through a public forum such as on their Social Media (without revealing your sensitive information) can be your quickest way to resolve it.
It becomes a reputation issue for the exchange if truly their actions are not justifiable, and also warns other users of their actions. Make use of their Social Media handles, it is for resolving complaints too.
5. Wait
If the reason they give is that your account is under investigation, you may have to wait for the outcome of your investigation. Your account may truly be a part of a larger investigation, and that may take a while to resolve.
6. Seek Legal Advice
Get your layer ready to do the work for you. Most crypto exchanges operate under the confines of the law. You can enforce your rights in a Court of Law and get your funds back.
Conclusions
The reasons a crypto exchange may freeze your account range from KYC issues, technical issues such as using bots (trading bots, malicious bots, and scripts), suspicious activities, illegal trading activities like Pumps and dumps, an increase in transaction volume, and, Government orders.
Actions you can take to resolve them include contacting customer support, completing and upgrading your KYC, removing connected bots from your accounts, using Social media channels of the Exchange, and, using legal means.
Photo Credit: https://unsplash.com/photos/n55P36NmaE4
See also: THE PITFALLS OF CRYPTOCURRENCY TRADING
