The Problem With Withdrawal Limits on CryptoCurrency Exchanges

A very important concept when making financial investments is liquidity. Liquidity is nothing more than the ability to convert investment into hard cash. Having the money in a checking account is very liquid, just go to the cashier or use a debit card to dispose of the money. Having a real estate investment is not as liquid, since making a sale usually takes months (find a buyer, get a mortgage, sign in the notary …).

Now, many users of cryptocurrencies are realizing that the liquidity of their Bitcoin and similar investments is quite low. And the worst thing is that they are realizing just when they sell, when the moment to find out should be when assessing whether the investment is made or not, since the potential for revaluation is not the only thing that matters in investments.

The Exchange, unregulated pseudo-banks

The liquidity problem of Bitcoin and other cryptocurrencies has two aspects. On the one hand there has to be a buyer so that a seller can recover the money. This is not very problematic in the case of Bitcoin but it can be in some smaller cryptocurrencies.

But the other problem comes from where to make the transaction. So far the place to buy and sell Bitcoin are the Exchange. On these sites, you can make purchases of cryptocurrencies and also act as a “bank” of Bitcoin, since they carry out the custody of the portfolios to facilitate their use.

Without going into details about whether this function of “banks” is good, it seems that its security is not as high as that of a real bank; the truth is that their functions are not regulated . And therefore there are no guarantees that they will provide the liquidity that the client needs.

I want to sell my Bitcoin now

The problem is that many Exchanges put a daily limit on the amount of Bitcoin we can sell. And this is a nuisance when it comes to undoing the investment. Some limits are really low, such as Bittrex, with 0.4 Bitcoin per day.

Even Coinbase, the largest Exchange in the world has certain limitations, yes, per user. We have verified that for a normal user with a registered credit card it is $100,000 a day. It seems a lot, but for those who have powerful investments, this is a complicated step to escape from a market crash.

But why do they do this?

The reasons given by the Exchange for these limitations are basically security. They want to avoid theft, money laundering, tax evasion … that’s why some of these Exchange raise the limits for verified accounts, in which they have information about the person behind the account.

The disadvantage with cryptocurrencies is that the transfers are irreversible. That is, once it is done you can not go back. With the standard financial system this is not so, and if someone suffers a theft because they have found out the keys to the bank’s web access, it can be undone if a short time has passed and there are also insurance against this type of fraud.

Another problem that the Exchanges want to avoid is that there is a vendor panic. In short, these sites live on the people who invest and if there is an avalanche of sales, it’s bad for business. If they manage to slow down with certain withdrawal limits, it suits them. In fact it is a mechanism that is also used in stocks, but it is perfectly regulated.


The funny thing about all this is that there really are no alternatives. Everything about Bitcoin is unregulated, and just as, for example, a bank can not limit, for example, the withdrawal of capital from an investment fund and the terms are very clear in the law, in the matter of cryptocurrencies it is like the wild west.

One option is to check yourself seriously with the Exchange you are working with. This may involve giving a bank account number, personal data, sending tax identification and a long list, but it improves a lot. For example, with Bittrex, which we mentioned earlier, the limit is raised to 100 Bitcoin per day.

Another option is to stop using the Bitcoin itself and move to invest in the futures markets that have recently been launched. There is a clear market, with established rules, and in dollars. It is true that it is for powerful investors (contracts are 1 or 5 Bitcoin) but at least there is a regulated liquidity that does not give problems.

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