Circle - Rolling Back Trades That Are Not Profitable for Them

[Bitcoins101]

I have deposited around $5,000 in funds from my bank account into Circle since October 11. Never had any issues on that end.

Last night (all times in GMT-8) at 8:39 PM I deposited a value (based on the Circle price, which is 0.5-1.5% above Bitstamp usually) of $4,951.47 of BTC (14.35 BTC total). At 10:24 PM, I withdrew all those funds to my bank account (the same account which had purchased a total of $5,000 worth of BTC from Circle since October 11), at a value of $4,924.34. This was below my personal withdrawal limit set by Circle of $5,000. After that, I went to sleep.

I wake up this morning and see an email from Circle at 12:24 AM, which says my withdrawal failed due to their "identity verification process". The BTC was back in my account.

The price difference in BTC between these time periods was $5/BTC and was $10+/BTC during the night.

Circle's current model allows them to make profits when more people deposit funds than withdraw funds, because their price is above the market price. In this particular withdrawal, they would have lost an additional $5-$10 per BTC if they do not immediately short the equivalent BTC. (I know they do not immediately sell the BTC, as the coins are still laying in the address unspent as of the time of this post.) They do not charge fees, so they're actually losing money or breaking even on every withdrawal, which is a reason for Circle to avoid them altogether.

• If Circle is not going to approve a withdrawal, why wait 2 hours and for BTC to drop $5-$10? Why rollback a trade? Because it's unprofitable?
• Why would a withdrawal not be approved, when I have previously purchased the same amount months prior using the same bank account? If there is Know Your Customer information Circle needs for that size of a transaction, that information should be required before submitting a withdrawal.
• Why even pretend to have withdrawals, if it is not actually possible to withdraw without passing through imaginary roadblocks? So Circle can use the 2+ hour float as a hedge?

[Bitcoins101]

They gave me essentially the worst possible form response they could give:

It appears your withdrawal was delayed due to our fraud prevention monitoring system. This is in place for your security.

Our team is currently reviewing your account information and will get back to you within the next few business days.

Thank you for your patience, continued feedback, and support.

April, Team Circle

If it was for their security (it's obviously not for my security) it would have been triggered when I deposited USD, not withdrew it. What are they worried about, security wise? The 95 confirmations aren't enough?

[exoton]

They are worried about not properly following AML/KYC rules. It is difficult to confirm that the name on your bank account is your name, so they are afraid that they are withdrawing money to a bank account that belongs to someone other then the person you told them you are (they probably assume that the bank account belongs to you, but are unsure as to your actual identity).

I would assume that they hedge their bitcoin trades, meaning they sell bitcoin on an exchange when you sell bitcoin to them, and they buy bitcoin on an exchange when you buy bitcoin from them

[Bitcoins101]

They are worried about not properly following AML/KYC rules. It is difficult to confirm that the name on your bank account is your name, so they are afraid that they are withdrawing money to a bank account that belongs to someone other then the person you told them you are (they probably assume that the bank account belongs to you, but are unsure as to your actual identity).

I would assume that they hedge their bitcoin trades, meaning they sell bitcoin on an exchange when you sell bitcoin to them, and they buy bitcoin on an exchange when you buy bitcoin from them

Yes, we all know this. They did it in the wrong order. If they need more information from me, then they need to request that information before the trade takes place.

They didn't put my withdrawal on hold - they canceled it, hours later, leaving me with less money than when the trade happened. That's what rolling back a trade is, regardless of what their AML/KYC procedures are. Rolling back a trade as a result of a mistake on their part (not completing their AML/KYC procedures before the trade took place) should not be without repercussions.

Lastly, "my own security" =/= legal compliance by Circle. Don't lie to your customers.

They certainly don't immediately sell the BTC on an exchange (unless they are not in control of your private keys) - or at least the BTC you send them. That wouldn't be hedging, anyway. I'd assume they just maintain a hot wallet of customer BTC balances under their own private keys and a balance on an exchange, which they may use to buy/sell when people on Circle buy/sell. (This leaves them with a small long position, which I think they may be comfortable with.) I'm sure their system is more complicated than this basic example, though still lacking sophistication, as evidenced by this experience I've had dealing with it.

[smoothie]

Classic bullshit tactic.

They should request all of your information up front when you are creating and verifying your account before you are ALLOWED to deposit funds into your account.

It is a trap.

Bullshit trap. MTGOX did it, bitstamp did it (sort of)....now them...

[Keyser Soze]

They gave me essentially the worst possible form response they could give:

It appears your withdrawal was delayed due to our fraud prevention monitoring system. This is in place for your security.

Our team is currently reviewing your account information and will get back to you within the next few business days.

Thank you for your patience, continued feedback, and support.

April, Team Circle

If it was for their security (it's obviously not for my security) it would have been triggered when I deposited USD, not withdrew it. What are they worried about, security wise? The 95 confirmations aren't enough?

I'd hope they would still honor the original price/transaction once they complete their "review". While I know Coinbase has seen similar complaints, I had hoped Circle would not use similar tactics. Please post their reply when you get it.

[Bitcoins101]

They gave me essentially the worst possible form response they could give:

It appears your withdrawal was delayed due to our fraud prevention monitoring system. This is in place for your security.

Our team is currently reviewing your account information and will get back to you within the next few business days.

Thank you for your patience, continued feedback, and support.

April, Team Circle

If it was for their security (it's obviously not for my security) it would have been triggered when I deposited USD, not withdrew it. What are they worried about, security wise? The 95 confirmations aren't enough?

I'd hope they would still honor the original price/transaction once they complete their "review". While I know Coinbase has seen similar complaints, I had hoped Circle would not use similar tactics. Please post their reply when you get it.

Absolutely. I am also hopeful that is the case, of course.

[exoton]

Yes, we all know this. They did it in the wrong order. If they need more information from me, then they need to request that information before the trade takes place.

You are not going to have any financial services company ever going to whitelist you like that. If circle were to whitelist you prior to accepting any trades from you then someone could just manipulate the system until they are whitelisted.

Any KYC/AML/suspicious activity policy needs to have it's employees exercise their judgment.

They didn't put my withdrawal on hold - they canceled it, hours later, leaving me with less money than when the trade happened. That's what rolling back a trade is, regardless of what their AML/KYC procedures are. Rolling back a trade as a result of a mistake on their part (not completing their AML/KYC procedures before the trade took place) should not be without repercussions.

IMO this would be the typical response anytime any company decides they cannot move forward with a transaction for AML purposes.

Lastly, "my own security" =/= legal compliance by Circle. Don't lie to your customers.

In theory these kinds of laws/regulations protect "society" and anytime these laws are broken "society" as a whole is harmed, so if your case was a case of AML laws being broken then you would technically be harmed (I am not saying I agree with this logic, but this is probably what the logic is)

They certainly don't immediately sell the BTC on an exchange (unless they are not in control of your private keys) - or at least the BTC you send them. That wouldn't be hedging, anyway. I'd assume they just maintain a hot wallet of customer BTC balances under their own private keys and a balance on an exchange, which they may use to buy/sell when people on Circle buy/sell. (This leaves them with a small long position, which I think they may be comfortable with.) I'm sure their system is more complicated than this basic example, though still lacking sophistication, as evidenced by this experience I've had dealing with it.

Your probably right. Anytime they have their customers buy x amount of bitcon more then what their customers are selling then they would execute a buy order on an exchange (the opposite is true as well). This is essentially a more drawn out process then what I described, but the effect on their position of bitcoin is the same.

A couple of things to add - 1 - I am sure that their ability to cancel trades like this is somewhere within their TOS which you would have had to agree to when you signed up. 2 - This probably happens both when the customer ends up with "less money" and when the customer ends up with "more money" but you will never hear about any of the instances when this works out to the customer's advantage.

I also am curious to know if you are connecting to circle via a VPN, if so I might speculate that has something to do with them canceling the trade if you are. I really don't see much of a point in connecting via a VPN as they know your identity anyway

[Bitcoins101]

You are not going to have any financial services company ever going to whitelist you like that. If circle were to whitelist you prior to accepting any trades from you then someone could just manipulate the system until they are whitelisted.

Any KYC/AML/suspicious activity policy needs to have it's employees exercise their judgment.


They said it was triggered by their monitoring system. In other words, they say it's automatic.

I run a financial services company. If you PM me, I can link you to my MSB registration. I deal with this all day; I'm not kidding.

I would never accept a trade and then cancel it after it had been completed without compensation. (I should note that Circle has not told me that they will not resolve this matter fairly, so it is still very possible they'll allow the withdrawal to be reinitialized or provide compensation for the price movement while the bitcoin was in their hands.) It's not about whitelisting - it's about setting legally-compliant limits for customers based upon the information they provide. Coinbase, OKCoin, etc. do this without issues with different levels of registration, because they have customers verify information BEFORE trading. You can't accept a trade and then 2 hours later cancel it and return less money because you didn't have adequate information at the time of the trade - it's too late.

They didn't put my withdrawal on hold - they canceled it, hours later, leaving me with less money than when the trade happened. That's what rolling back a trade is, regardless of what their AML/KYC procedures are. Rolling back a trade as a result of a mistake on their part (not completing their AML/KYC procedures before the trade took place) should not be without repercussions.

IMO this would be the typical response anytime any company decides they cannot move forward with a transaction for AML purposes.

The transaction already took place.

Lastly, "my own security" =/= legal compliance by Circle. Don't lie to your customers.

In theory these kinds of laws/regulations protect "society" and anytime these laws are broken "society" as a whole is harmed, so if your case was a case of AML laws being broken then you would technically be harmed (I am not saying I agree with this logic, but this is probably what the logic is)

I have nothing against AML/KYC - my own business follows them stringently. However, AML/KYC is something you do before a trade takes place. Saying it is for my security is quite the stretch - their AML/KYC procedures are for their security to protect them from fraud and comply with regulations.

They certainly don't immediately sell the BTC on an exchange (unless they are not in control of your private keys) - or at least the BTC you send them. That wouldn't be hedging, anyway. I'd assume they just maintain a hot wallet of customer BTC balances under their own private keys and a balance on an exchange, which they may use to buy/sell when people on Circle buy/sell. (This leaves them with a small long position, which I think they may be comfortable with.) I'm sure their system is more complicated than this basic example, though still lacking sophistication, as evidenced by this experience I've had dealing with it.

You're probably right. Anytime they have their customers buy x amount of bitcon more then what their customers are selling then they would execute a buy order on an exchange (the opposite is true as well). This is essentially a more drawn out process then what I described, but the effect on their position of bitcoin is the same.

A couple of things to add - 1 - I am sure that their ability to cancel trades like this is somewhere within their TOS which you would have had to agree to when you signed up. 2 - This probably happens both when the customer ends up with "less money" and when the customer ends up with "more money" but you will never hear about any of the instances when this works out to the customer's advantage.

Maybe it does, maybe it doesn't. Circle is still a very new company and bugs (whether unintentional or intentional) like this are crippling. The fact is, they canceled a trade after it took place, for a reason that should have been dealt with before allowing a nearly $5,000 trade to take place.

TOS is nearly worthless in court when it comes to matters like this.

I also am curious to know if you are connecting to circle via a VPN, if so I might speculate that has something to do with them canceling the trade if you are. I really don't see much of a point in connecting via a VPN as they know your identity anyway

I can assure you the connection did not play a role.

[exoton]

I know that there have been a number of similar complaints against coinbase, especially around times when the price of bitcoin was skyrocketing.

I don't think that the issue was not that they didn't have enough information to allow you to trade, I think the issue was that something about the trade set off some kind of flag after someone reviewed it (or something about your account set off some kind of red flag). If this was the case then whatever triggered the flag would not be something that would automatically cause the trade to be declined/canceled.

I think they could solve this problem by allowing users to hold a USD balance in their account to prevent these kinds of issues - in your case they could have refunded you the just under $5k that you tried to withdraw, when it could stay (if you choose) until you can resolve the issue. I really don't know why they (and coinbase) don't offer this.

IMO this is a good example as to why you should not trade/use these kinds of services, especially for larger amounts. P2P transactions and transactions at an ATM seem to be far superior (even if you get slightly worse rates)

[Bitcoins101]

I know that there have been a number of similar complaints against coinbase, especially around times when the price of bitcoin was skyrocketing.

I don't think that the issue was not that they didn't have enough information to allow you to trade, I think the issue was that something about the trade set off some kind of flag after someone reviewed it (or something about your account set off some kind of red flag). If this was the case then whatever triggered the flag would not be something that would automatically cause the trade to be declined/canceled.

I think they could solve this problem by allowing users to hold a USD balance in their account to prevent these kinds of issues - in your case they could have refunded you the just under $5k that you tried to withdraw, when it could stay (if you choose) until you can resolve the issue. I really don't know why they (and coinbase) don't offer this.

IMO this is a good example as to why you should not trade/use these kinds of services, especially for larger amounts. P2P transactions and transactions at an ATM seem to be far superior (even if you get slightly worse rates)

The complaints for Coinbase were of somewhat different nature and were a result of extreme circumstances. Regardless, I don't believe there were any on the sell side, which is quite different than a transaction on the buy side.

Coinbase does offer USD balances now.

We shouldn't lump all exchange businesses into the same garbage bag.

[segvec]

I'll be sticking to Coinbase after reading about this shit they have been doing.

[exoton]

If you are trying to make money from trading (aka speculating on the direct that bitcoin is going) then exchanges are good, but I really don't like them for converting bitcoin to fiat (or fiat to bitcoin).

The thing about circle is that, even though they allow for large trades, they really do not market themselves as being used for a $5k trade, they seem to market themselves (to me at least) for consumers who are just getting started with bitcoin and are wanting to buy a small amount to spend at overstock (for example).

I think coinbase has somewhat refined their security procedures so that they now need to stop many less transactions after the fact as the number of complaints about them canceling trades has decreased substantially. Maybe the same will eventually happen with circle.

[UsedToBitcoin]

Increibleble roll back by Circle if u ask.

[Olaf]

I had great hopes for that site.. but if its like that, then ill stick to coinbase.

i got excited only cause of the creditcard purchase etc.

[Oriannaa]

i always wondered how circle makes profit.

now i see clearly, but damn i didnt know they just roll back like that just cause their business model sucks. why dont they charge for extra services in else where to make up for the profit?

[damiano]

I had great hopes for that site.. but if its like that, then ill stick to coinbase.

i got excited only cause of the creditcard purchase etc.

Coinbase was notorious for doing the same thing about a year ago

[Pantheon]

I had great hopes for that site.. but if its like that, then ill stick to coinbase.

i got excited only cause of the creditcard purchase etc.

Coinbase was notorious for doing the same thing about a year ago

Thats pretty crazy, so i guess history repeats itself. Do they still do this but at selective times?

I remember there was a time when, they supposedly ran out of bitcoins to fulfill or something.

[Bitcoins101]

I had great hopes for that site.. but if its like that, then ill stick to coinbase.

i got excited only cause of the creditcard purchase etc.

Coinbase was notorious for doing the same thing about a year ago

Thats pretty crazy, so i guess history repeats itself. Do they still do this but at selective times?

I remember there was a time when, they supposedly ran out of bitcoins to fulfill or something.

That happened a few times - people were notified before placing trades that they would receive bitcoins based upon the rate when the transfer cleared.

[haploid23]

Personally, I don't think they did it on purpose. You probably hit some threshold of fiat movement that triggered additional AML/KYC.

I recently got my google wallet frozen and was requested for bank statement of the same bank that was linked to my account. I've done a handful of transactions without any problems using the same linked bank, then all of a sudden my account was suspended and all pending transactions were canceled. Wasn't a huge deal to me, I just uploaded ID and docs and got my account back a day later.

This exactly parallels what happened to you, except my Google Wallet account had nothing to do with BTC, so google had nothing to gain from doing that. It was just to verify that my funds had been going to the correct account this whole time.