[tradersam]

> You are misinformed. The people who provide the dollars to this market are the customers of the exchanges. It seems like you are not familiar with how a currency exchange works.

I fear you're misinformed. Besides localBitcoins, how does one get fiat to an exchange?

That's right — a bank. Exchanges like Bitfinex only survive because of things like Tether, which requires other fiat accepting exchanges.

If all exchanges were like Bitfinex, there would be a liquidity crunch, as the OP is saying.

[modeless]

No, that's not what OP is saying at all. Read his posts. He's under the impression that exchanges take out bank loans to pay dollars to their customers, which is false.

When banks refuse to deal with an exchange like Bitfinex, it has nothing to do with liquidity concerns. It's because banks are required by law to verify who they are transferring money to (AML/KYC), and they don't believe Bitfinex abides by those laws (they are right).

BTW, Bitfinex recently reopened bank deposits and withdrawals.

[tradersam]

> No, that's not what OP is saying at all. Read his posts. He's under the impression that exchanges take out bank loans to pay dollars to their customers, which is false.

Although that would be incorrect, there still are valid fears for a liquidity crunch, as I stated. This, regardless of why (be it laws or fund availability) does create a concern due to liquidity.

> BTW, Bitfinex recently reopened bank deposits and withdrawals.

Clearly not true. Especially for U.S. customers: https://www.bitfinex.com/posts/227

[modeless]

True that US customers are banned from Bitfinex, however they did recently announce that bank deposits and withdrawals are reopened for other countries. If you don't believe them that's fine, I don't trust them either, but they did announce it. https://www.reddit.com/r/BitcoinMarkets/comments/7enpoo/bitf...

[tradersam]

The first string of comments says they haven't announced yet (besides on reddit) and nothing on their site claims anything to that affect either.

Also, if the Fed barred any Bitcoin sales/buys with USD (however unlikely) almost all reputable bank would drop those as well, regardless of country. This has been discussed in detail on r/BitcoinMarkets, actually.

[coryl]

So wherein lies the liquidity problem?

I deposit USD to an exchange...then use that USD to place a Bitcoin buy order. Then I sell some Bitcoin another buyer on the exchange, who was only able to make this transaction happen because they too deposited USD or fiat into their account.

I get the money, they get the Bitcoin. Who is getting screwed?

[tradersam]

If the banks cut off access to the funds (e.g.: GDAX can no longer accept USD deposits/withdraws, or possibly even the funds in their own accounts) they basically can't be considered an "off ramp" anymore. If all exchanges were barred from doing business from U.S. banks, than there is no way to get money from 1 BTC (or any other denomination/currency). Herein lies the screw.

LocalBitcoins would become a seller or buyers only recourse, for U.S. customers anyway, which takes a lot of coordination/time, and essentially becomes an obvious form of money laundering.

[coryl]

Ok, so the problem is in the legal arena; the government bans banks from allowing cryptocurrency transactions.

This doesn't seem like a fundamental problem due to the structure of Bitcoin or exchanges.