Coinbase Requires Proof of Source of Funds for Assets from Customers
Have you suddenly been surprised on Coinbase with a demand for a proof of source of funds? Then you are not alone. Because Coinbase is now demanding proof of source of funds for your Bitcoins, other cryptocurrencies, and even your cash deposits. As currently the largest and best-known crypto exchange, Coinbase wants to comply with legal regulations that require financial service providers to clarify the source of financial funds.
Those who do not submit the required proof of source of funds (also: source of origin or source of wealth) will be blocked. Funds in cryptocurrencies or euros can then no longer be moved.
How to Provide Proof of Source of Funds to Coinbase
Generally, you should follow the guidelines that Coinbase communicates to you as a customer when the exchange requests proof of source of funds from you. It may be that only isolated transactions on your account need to be proven regarding their source. However, it is also possible that your entire transaction history must be shown.
If Coinbase requires proof of source of funds for a specific deposit of euros or cryptocurrencies, it is a matter of credibly disclosing the original source of this deposit.
Example: you deposit 0.1 BTC from your own wallet to your Coinbase account. Coinbase now wants proof of source of funds for this crypto transaction. Here it is not enough to tell Coinbase that the 0.1 BTC came from your own wallet. Coinbase needs much more the information where the 0.1 BTC originally came from. If the 0.1 BTC were once acquired on another exchange through a purchase with euros, this very purchase history is the proof of source of funds. It is quite possible that Coinbase additionally wants to know where again the Euros came from with which you had acquired the 0.1 BTC for the first time.
However, if for whatever reason Coinbase suddenly wants to know your entire deposit and trading history, a comprehensive proof of source of origin must be provided. In English, this is then called source of wealth, meaning the “history of your money”, as well as of course all intermediate stops on crypto exchanges (coins against coins, fiat against coins, airdrops, staking, hard forks etc.).
It is worth taking a look at our section on possible evidence in proof of source of funds. Feel free to also take a look at the first steps in proof of source of funds to get a better understanding of the topic.
Coinbase Has Been the Easiest Way to Invest in Crypto Long Time
Coinbase made a name for itself around the world by emphasizing user-friendliness and offering a first-class service. It was only through Coinbase that the vast majority of newcomers to the crypto space were able to directly acquire Bitcoin and cryptocurrencies and trade them in a simple manner.
Through the proof of source of funds, the legislator unfortunately drives a wedge between Coinbase and the clientele. Because suddenly, Coinbase’s first priority is no longer to offer the greatest possible user-friendliness, but primarily to comply with legal regulations.
Coinbase is now a publicly traded company, which means: Coinbase is listed on the stock exchange, belongs to the shareholders in terms of ownership, and must accordingly act transparently in public. Under no circumstances will Coinbase allow itself to do anything “shady” in any way by not or insufficiently complying with certain anti-money laundering regulations. Therefore, it is not surprising that Coinbase takes and verifies the origin of funds seriously.
Now Coinbase Requires Proof of Source of Funds From Long-Time Customers As Well!
You may think that you, as a customer who has been trading on Coinbase for years without any problems and honestly, will not be affected by these demands for proof of source of funds. Wrong thinking. For Coinbase and other exchanges where bitcoin and cryptocurrencies can be traded, it doesn’t matter how long you have been operating an account.
This is because money laundering legislation treats everyone equally. You cannot earn a “trust” or a “reputation” of any kind with regard to the source of financial resources. A separate proof of source of funds is usually required for every receipt of funds and for every deposit made by cryptocurrencies.
Coinbase will not take the side of the clientele in case of doubt, but will want to fulfill the legislative requirements as best as possible. No sufficient proof of source of wealth means no further trading on Coinbase for you.
For long-standing Coinbase customers, this is sometimes even more problematic than for new customers. This is because those who have already been trading with cryptos for years may not (or no longer) have proof of source of individual funds, coins and tokens. New customers who have made a euro deposit on a crypto exchange for the first time in their lives do not have to worry about “mass proofs of source of funds” from the past.
What’s the Legal Situation at Coinbase on Source of Funds?
As a German, Austrian or Swiss Coinbase customer, you rightly ask yourself which laws apply to the proof of source of funds. We have already outlined the legal situation in Germany and Austria. However, Coinbase is a company headquartered in the USA and therefore not particularly interested in European legislation to begin with.
The US legal system applies to Coinbase. With regard to the proof of the source of funds, Coinbase is therefore guided by the anti-money laundering legislation in the USA. The US legal situation is shaped, among other things, by „The Anti-Money Laundering Act of 2020“, which is explained on the website of the US FinCEN.
Only recently, the US FinCEN published a „Notice Of Proposed Rulemaking“ on the topic of cryptocurrencies (excerpt):
Among other things, it states that transactions involving Bitcoin and/or other cryptocurrencies above a limit of USD 10,000 (value) must meet special “recordkeeping requirements” on the part of service providers such as wallet providers. The money laundering regulations in the USA are therefore increasingly focusing on cryptocurrencies and no longer just on the traditional banking sector or special fields such as art trading and precious metals trading.
Caution! False Information in Relevant Bitcoin Forums About Coinbase And the Source of Funds
In conclusion, we would like to warn against looking around in well-known or less well-known cryptocurrency forums for advice, experiences or hints when it comes to Coinbase demanding proof of source of wealth. In some cases, not only unhelpful, incorrect or outdated tips are given there – which is already concerning enough.
According to our research, in some forums and on social media channels, affected people are downright encouraged to forge proofs of source of funds and submit the forged documents to Coinbase. Keep in mind that a forged proof of source of funds can constitute a forgery of documents according to § 267 StGB. Even an attempt is punishable; the penalty is very similar to that of a completed offense.
If you get stuck with the proof of source of funds on Coinbase on your own initiative, it is recommended to seek professional help. Contact persons for the provision of a legally compliant and convincing proof of source of funds are specialized lawyers, tax advisors and asset managers.
Questions and answers
What to do if no proof of source of funds can be provided?
If your financial resources - whether euros, or cryptocurrencies - come from a "clean source", experience shows that evidence is available. These may be difficult to find at times, but it is worth doing more research here or seeking professional assistance.
If you cannot provide proof of origin because the source of your funds is "not clean", the proof of source of funds at Coinbase should be your smallest problem in the long run - because then criminal offenses have probably been committed.
Are documents in German sufficient if Coinbase requires proof of origin?
Yes. Since Coinbase has German clientele, it is not unusual for Coinbase to submit German documents regarding the proof of source of funds.
It is certainly helpful to include a brief explanation in English of the German documents submitted in each case.
In exceptional cases, Coinbase may require a certified translation.
What if I don't want to provide proof of origin?
If, for whatever reason, you decide not to disclose to Coinbase the required proof of source of funds, you may face an account suspension.
However, this does not mean that your assets are lost or frozen forever. There are ways to withdraw funds in Euros or cryptocurrencies from Coinbase even if proof of source of funds has not been provided by you or accepted by Coinbase.