Analyst Director of CoinKit LLC Stanislav Rozhdestvensky, in the RBC-Crypto column, analyzed what happened to the Finnish crypto service and spoke about the impact of this event on the entire industry.
On February 9, 2023, major P2P cryptocurrency platform LocalBitcoins announced that it was suspending its operations.
Registration of new users is currently stopped. On February 16, trading operations will be terminated. From February 17, users will only be able to withdraw their funds from exchange wallets, this feature will be available for 12 months.
Who are LocalBitcoins?
LocalBitcoins, registered in Helsinki, has been operating since 2012 as a platform for P2P transactions with cryptocurrencies around the world. The user could bring cryptocurrency to the site and sell it to another user for fiat money, which was transferred outside the site (OTC – over the counter) in any way convenient for the participants in the transaction. This popular trick for converting cryptocurrency to fiat can be found on any major exchange (Binance, Huobi, etc.)
At one time, the founder of the site, Jeremias Kangas, in an interview with Bitcoinist, stated that LocalBitcoins provides users with “increased privacy” because it does not require any identification. Until 2019, the service even allowed users to buy and sell bitcoin for cash in person. Not surprisingly, LocalBitcoins eventually became a magnet for illicitly earned cryptocurrencies. According to blockchain analytics, over 60 thousand BTC (about 100 billion rubles) from the Hydra darknet marketplace passed through the platform during its operation. This is less than 1% of the total turnover of the service, but the amount is still significant: it turns out that LocalBitcoins was the largest counterparty of the illegal trading platform.
In 2020, the shady operations of LocalBitcoins went public – analytics firm CipherTrace devoted an entire chapter to them in a report on cryptocrime and money laundering. The platform administration made conclusions and tightened their AML and KYT policies, after which users began to massively complain about blocking accounts without warning. On the one hand, due to this, it was possible to avoid the closure of the site by law enforcement agencies. On the other hand, this alienated some of the customers from LocalBitcoins.
Competitors did not doze off either – other major players entered the P2P market. In 2019, the Binance exchange launched its P2P section, offering customers more favorable conditions. LocalBitcoins charges a 1% commission for posting an advertisement for the purchase or sale of crypto assets on its platform, and the Binance commission, depending on the specific currency, ranges from 0 to 0.35%.
As a result of these factors, LocalBitcoins began to rapidly lose market share: if in 2019 the platform’s turnover exceeded $50 million per week, by 2022 the figure had fallen by almost 10 times. At the end of 2022, there were rumors about the imminent bankruptcy of the company. And, apparently, they were not just rumors.
conclusions
Regarding the situation around LocalBitcoins, there are no comments from law enforcement agencies yet, so we cannot talk about the forced closure of the site. Time will tell if the service from Finland will be able to pay off all of its customers, or will try to withdraw funds and turn out to be another scam.
The most likely reason for the closure of LocalBitcoins is the company’s inability to adapt to the tightening legal requirements in the field of combating money laundering and the financing of terrorism (AML / CFT). Initially, its business model was based on anonymous (i.e. without KYC procedures) user access to the platform and decentralized exchange. Customers who value anonymity were willing to pay higher commission rates. An attempt to rebuild the business model under the new rules led to an outflow of customers to competitors offering more favorable financial conditions, and a drop in turnover.
It is now obvious that it is dangerous to build a cryptocurrency business without complying with the requirements of regulators in the field of customer verification (KYC) and transactions (KYT), and these conditions must be built into the business model from the very beginning. It becomes more difficult to work in the market, the times of “true crypto-anarchists” are a thing of the past. Regulation is tightening, competition is growing, and the ability to adapt to changing conditions is becoming the key to survival in the market. On the other hand, the cryptocurrency market is becoming more civilized, which brings the moment of official recognition of cryptocurrencies as a convenient, high-tech financial instrument of the future closer.
Source: bitcoinlinux.com
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