It is indeed a bull market. Yesterday, I casually responded to a friend's tweet about compliant fund inflows and outflows, and I didn't expect it to be so popular. So, let me elaborate on some key points here:
- Is it necessary to have a broker?
It is very necessary. Many friends encounter frozen cards when withdrawing or depositing funds through OTC, and "frozen cards" are not only encountered in China. Although it may not reach the level of frozen cards overseas, if there is no way to fully return the funds through AML (Anti-Money Laundering), there is a very high possibility of issues. The key point is to complete the AML required by the bank.
In fact, being frozen in China is due to at least one link in the funding chain having issues; the funds are considered "dirty money," which is the main reason for the freeze. However, there is a global consensus that funds coming from brokers are the most compliant and clean. Some brokers are even rated higher than banks.
Therefore, a statement issued by a broker can prove the compliance of your funds. In simpler terms, the higher the level of the broker issuing the proof of funds, the more it can demonstrate that your money is clean. As long as the amount is not excessively high (such as transferring over $1 million at once), there is almost no problem. For example, funds from a top broker in the U.S. can smoothly enter almost all banks worldwide. (However, whether they can smoothly exit is another matter.)
Let me give an example that is most relevant to friends. For instance, if Steven @Trader_S18 wants to immigrate from China to the U.S. through EB-5, he currently needs around $800,000 to $1.1 million. However, Steven is a "crypto trader," and all his funds, including USDT, are cryptocurrencies. So, if Steven has $1 million in USDT, can he directly apply for EB-5?
The answer is no, because Steven cannot prove where his $1 million in USDT came from. Some friends might say that many banks support the verification of cryptocurrency links, right? Yes, that is correct, but this involves the overall funding chain of $1 million. If Steven spent $1,000 to buy 10 #Bitcoin ten years ago, which is now worth $1 million, he would need to submit the documents for purchasing #BTC from ten years ago and also prove where the $1,000 used to buy BTC came from. If it was from salary, he would need to provide proof of salary at that time.
Now, the question arises: this is still the simplest requirement for proving the funding chain. If it is not that simple and involves many types of tokens and spans a long time, it is almost impossible to complete the KYC for cryptocurrencies.
So, Steven cannot directly take $1 million USDT to apply for EB-5. Some friends might say, "Well, I can find an OTC in the U.S. to exchange for $1 million and then apply for EB-5, right?"
I'm sorry to tell you, but that won't work either. Because when applying for EB-5, there will still be KYC and AML checks on the dollars in the bank, and you will have to explain where your $1 million came from. Even if you did the OTC not through compliant channels, your $1 million would still be non-compliant, so you still cannot complete the EB-5 application, even if you have sufficient funds.
The same example applies to buying property in Europe or applying for a family office in Singapore; the principle is the same.
Some friends might say, "I know someone who has already applied and bought a house without any issues. Are you just being alarmist?" I can responsibly tell you that as long as you have money, there are over 100 ways to help you, but almost none of them are 100% compliant. There is always a risk when funds flow out or when they flow in, and currently, global compliance requirements for currency are getting higher and higher. In some places in the U.S., even opening a new account with $5,000 will raise questions about the source of funds.
So, what does this have to do with brokers?
The biggest relationship is that brokers can provide a more reasonable explanation for your funds. Under the premise of not having an excessively high amount of funds, the broker's statement can meet all the needs of ordinary people.
Some friends might ask, "Will the money I enter into the broker also need KYC and AML?" I will answer this in two parts:
A. When the funds have not yet entered the broker, the broker will conduct KYC on the investor and AML on the funding chain. How to explain this? It means that they need to understand you personally and require you to submit your source of funds. For example, if your funds are from salary, you need to provide proof of salary. If it is an inheritance, you need to provide proof of inheritance. If it is a gift, you need to provide proof of the gift. Once you provide this information, funds within this range will generally not be scrutinized.
For example, if I opened an account at a bank in the U.S., completed KYC and AML, then opened an account with a broker, completed KYC and AML, and linked it to my U.S. bank account, I can conveniently transfer funds from the bank to the broker according to my AML "limit" without being required to undergo AML again.
Where does this limit come from? It is basically your proof of income. If the proof of income you submit shows that you have a monthly income of $20,000, then transferring around $100,000 is generally not a problem each month. Transferring more is also not a big issue, but it needs to be done gradually. Of course, if your proof of funds confirms that you can have a monthly income of $1 million, then transferring $10 million is safe.
Of course, this is just a rough division of limits; it is not that precise. But generally speaking, the more you can provide proof of your legal income, the greater leverage you can exert.
So how can you provide proof of a $20,000 monthly income? I won't elaborate on that.
B. When your funds move from the broker to other banks or enterprises, will they verify the source of funds from the broker? This is actually a black box. How to say it? There is no guarantee, but in most cases, such as buying a house, a car, immigrating, or getting married, they will not require very strict "past" proof of funds because it is assumed that the broker has already done that for you. However, there are indeed some cases that require re-verification, such as acquiring other companies or investing in companies, which have high funding requirements in B2B businesses. These do have demands, but they are not insurmountable, and we won't discuss that here.
So we can clearly see how useful brokers are for AML of funds. It can be said that once funds enter the broker and can be converted into purchasing power, your funds are basically "clean."
So, can my funds be directly transferred from an exchange or a third party to the broker and then withdrawn?
I'm sorry, but that won't work. Even if you "pass through" the broker, you still cannot obtain a valid statement because you treated the broker as an intermediary. This is very dangerous, and the broker may even blacklist you. Therefore, the safest way after entering the broker is to convert the funds into purchasing power and then make a move.
I wonder if any friends remember the #BTCFi project I am currently working on, which basically provides liquidity for #Bitcoin, and the source of liquidity comes from $MSTR and $IBIT, which are U.S. stocks and ETFs, and the broker is a very important link in this chain.
BTCFi: https://x.com/Phyrex_Ni/status/1858901836503359953
For example, if you are a loyal believer in #BTC or #ETH, you can exchange part of your BTC position for MSTR or IBIT, especially IBIT, which is a bit safer. In this way, without losing your position, IBIT serves as your "hedge" in U.S. stocks, hedging not against price risk but against the risk of your source of funds.
If BTC rises from $100,000 to $200,000, then your IBIT also rises from a value of $100,000 to $200,000. When you sell IBIT, you have a compliant USD exposure. Even if you haven't sold, the statement issued by the broker for holding IBIT can prove the validity of your funds.
Moreover, if you hold MSTR, you can also use the broker's statement to mortgage your MSTR at a bank in the U.S. to gain more compliant USD exposure. This is one of the biggest uses of brokers.
- When is the best time for brokers to intervene?
From my personal experience, there are three optimal times for brokers to intervene:
A. Generally speaking, the best first stop for funds coming out of an exchange is the broker. However, not all friends have a broker's "bank card," so entering the broker is not very convenient. Therefore, a third-party funding platform is needed, such as Wise, iFast, etc., which are very convenient third-party platforms. Some friends say Wise is not good and is easily subject to risk control. The main reason is that you have not completed the AML properly. After using Wise several times, Wise will require you to supplement your AML information, which is your source of funds. As long as you provide that, Wise will not have issues with your funds.
Of course, if you have a bank account in a compliant country or region for cryptocurrencies, that is also fine. For example, banks in the U.S., Europe, Singapore, Hong Kong, Japan, South Korea, etc., can exchange USDT or USDC or cryptocurrencies for fiat currency through KYC exchanges and then transfer it to the corresponding bank account.
If you are using a small amount, such as living expenses, then it is fine not to go to the broker after entering the bank. But if you plan to deposit funds, regardless of whether you want to return to a "currency-controlled" country, entering the broker is the best time, especially since you can buy U.S. Treasury bonds through the broker, which offers a risk-free return of around 3%. This is not for making money but to ensure better "AML" for your funds.
B. If you want to do global asset allocation, entering the broker as a hedge against fiat currency risk is a very effective solution. For example, the #BTCFi I mentioned earlier is a way to allocate USD assets without losing your position, currently applicable for hedging fiat currency risk for #BTC and #ETH.
The biggest benefit of this route is also in asset inheritance, which I won't explain in detail; those who understand will understand.
C. When you have future plans that require a large amount of USD or overseas funds, starting to invest in low-risk yield products at the broker in batches is the best time. For example, if you plan to acquire an overseas identity in a third country after the bull market ends, you need to ensure the compliance of your funds from the beginning of that plan. Remember, simply entering a bank is not 100% safe; there are still risks in the chain.
- Will brokers run away, and will the funds be unsafe?
The more compliant the broker, the less likely such problems will occur. In a sense, the safety of funds with brokers can be more reliable than banks. Even if a broker encounters risks, there will be compensation mechanisms. For example, if you buy $5 million worth of stocks, ETFs, or even U.S. Treasury bonds at a broker, even if the broker goes bankrupt, your assets will not be lost; they will be transferred to another broker. This is called "asset isolation."
However, if you do not buy assets and store pure cash, U.S. brokers are protected by SIPC (Securities Investor Protection Corporation), with a limit of $250,000. If the broker misuses your exposure, the SIPC compensation limit is $500,000.
So there is no 100% safety; it can only be said that the risk of bankruptcy is lower for larger, high-net-worth brokers.
The above three points basically explain the position of brokers in the inflow and outflow of funds in the cryptocurrency industry. It can be said that for small-scale fund applications, brokers are not very significant, but for the allocation and compliance of large amounts of funds, brokers are one of the best channels. Although there are other ways, they are not very meaningful for the vast majority of users.
Additional:
- How to withdraw USD from Kraken, Huamei method.
https://x.com/Phyrex_Ni/status/1694230225444618323
- How to withdraw EUR from Kraken, Wise method.
https://x.com/Phyrex_Ni/status/1697595913391530198
- Explanation of compliance for overseas withdrawals.
https://x.com/Phyrex_Ni/status/1697595913391530198
- Broker registration process, Charles Schwab method.
https://x.com/Phyrex_Ni/status/1719263337601482816
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