Crypto Freeze: How to Unlock Your Crypto Locked by Exchanges (2024)

While the concept of "asset freeze" is traditionally associated with banks and financial institutions, it has become increasingly significant in the context of cryptocurrency exchanges.

Any individual participating in cryptocurrency trading and investments has to understand the causes and mechanisms behind asset freezes as well as how to unfreeze assets and avoid them in the future. These exchanges can freeze user funds for various reasons, including regulatory compliance, fraud prevention, and violation of terms of service.

Such freezes can be inconvenient and stressful for users, especially if they need to be made aware of the reasons behind the freeze or the steps needed to resolve it. Moreover, cryptocurrencies' decentralized and global nature adds an extra layer of complexity to the process.

In this article, we will explore why these freezes occur, how your crypto assets can be frozen, and what steps you can take to unfreeze your assets. Additionally, we will provide practical advice on how to avoid having your funds frozen in the first place.

Why do Cryptocurrency Exchanges Freeze User Funds?

Cryptocurrency exchanges may freeze user funds for a number of reasons, primarily to ensure regulatory compliance and the security of the platform. Here are some good reasons why exchanges can take this action:

1. Regulatory Compliance and Legal Requirements: Cryptocurrency exchanges must comply with local and international regulations to operate legally. Key regulations include Know Your Customer (KYC) and Anti-Money Laundering (AML) laws. These laws require exchanges to verify the identities of their users and monitor transactions for suspicious activity. If an exchange detects any red flags, such as inconsistencies in user information or transactions that resemble money laundering, it may freeze the user's funds to conduct further investigation.
2. Suspicious Activity and Fraud Prevention Exchanges actively monitor transactions for signs of fraudulent behavior. This includes: Unusual Transaction Patterns: Large or atypical transactions that deviate from a user's normal activity can trigger a freeze. For example, a sudden, significant withdrawal or transfer in large amounts might raise alarms. High-Risk Transactions: Transfers to or from known high-risk addresses, such as those associated with dark web markets or previously identified fraudulent activities, can lead to a freeze. This would also involve flagging your account if found associated or even interacting with an address included in the SDN (Specially Designated Nationals) and Blocked Persons in the OFAC Sanction List. Multiple Account Manipulation: Users attempting to manipulate the market by using multiple accounts may have their funds frozen as part of the exchange's efforts to maintain a fair trading environment.
3. User Agreement Violations: When users sign up for a cryptocurrency exchange, they agree to abide by its terms of service. Violating these terms can result in the freezing of funds. Common violations include: Market Manipulation: Practices like wash trading (buying and selling the same asset to inflate its volume) or spoofing (placing large orders with no intention of executing them) can lead to a freeze. Use of Prohibited Software: Using bots or other software to gain an unfair advantage in trading can also result in account freezes.
4. Security Concerns: If an exchange suspects that an account has been compromised, it may freeze the account to protect the user's assets. Security-related freezes typically occur when: Unusual Login Activity: Logging in from unfamiliar IP addresses or devices can trigger security alerts. Hacking or Phishing Attempts: If there are signs that hackers are targeting an account or have fallen victim to a phishing attack, the exchange may freeze the funds to prevent unauthorized withdrawals.
5. Technical and Operational Issues: Sometimes, technical glitches or operational errors can result in temporary freezes. For instance: System Errors: Bugs or issues in the exchange’s software might inadvertently freeze accounts. Maintenance: During periods of maintenance or updates, exchanges might temporarily freeze transactions to ensure the integrity of their systems.
6. Government Investigations : Government agencies and regulatory bodies sometimes request exchanges to freeze assets as part of ongoing investigations. In such cases, exchanges comply with legal requests to freeze specific accounts under investigation for criminal activities

How to Unfreeze Your Assets on Cryptocurrency Exchanges?

The methods outlined below work effectively for pretty basic situations. There are instances where there are critical cases on a user's account and using these methods will not work, but will rather require further escalation with the exchange and authorities.

• Contact Customer Support: The primary course of action should be to contact the exchange’s customer support team. Most exchanges have a dedicated support system, often accessible via email, live chat, or support tickets. Here’s how to proceed:
• Gather Information: Before contacting support, gather all relevant information. This includes your account details, recent transaction history, and any notifications or messages from the exchange regarding the freeze. Remember to gather as much information as possible as it will help to validate your claims during conversations with the support team.
• Be Clear and Concise: When you reach out to support, explain your situation clearly and concisely. Provide all the gathered information and ask for specific reasons why your account has been frozen and what steps you need to take to resolve the issue.
• Follow-up: If you don’t receive a response within the expected timeframe, follow up politely. Customer support teams can be quite busy, and a gentle reminder can help expedite your case.
• Provide Necessary Documentation: Often, exchanges freeze assets as part of their compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. In such cases, you may be required to provide additional documentation to verify your identity and the legitimacy of your transactions. This documentation might include:
• Identification Documents: A government-issued ID, passport, or driver’s license.
• Proof of Address: Utility bills, bank statements, or rental agreements that show your current address.
• Transaction Records: Details of recent transactions that might be flagged, including the source of funds and the purpose of transfers.
• Understand and Comply with Exchange Policies: Each cryptocurrency exchange has its own set of policies and procedures. Familiarize yourself with the specific policies of your exchange regarding frozen assets. This information is typically found in the exchange’s terms of service or help center. Understanding these policies can help you navigate the process more effectively:
• Account Verification: Ensure that your account is fully verified according to the exchange’s requirements.
• Transaction Limits: Be aware of any transaction limits and ensure that your activities do not exceed these limits.
• Prohibited Activities: Avoid activities that are prohibited by the exchange, such as market manipulation or using unauthorized bots.
• Resolve Security Issues: If your account has been frozen due to security concerns, such as suspicious login attempts or potential hacking, you’ll need to take additional steps to secure your account. These steps may include:
• Change Passwords: Immediately change your account password and ensure it is strong and unique.
• Enable Two-Factor Authentication (2FA): If you haven’t already, enable 2FA to add an extra layer of security to your account.
• Review Account Activity: Check your account’s recent activity and report any unauthorized transactions to the exchange.
• Be Patient and Persistent: Unfreezing assets can sometimes be a slow process, especially if the exchange is dealing with a large number of similar cases or if regulatory bodies are involved. Patience and persistence are key:
• Regular Updates: Keep in regular contact with the exchange’s support team for updates on your case.
• Document Everything: Keep detailed records of all communications with the exchange, including emails, chat transcripts, and support ticket numbers.

In rare cases, your assets might be frozen due to legal issues or regulatory investigations. If you believe this to be the case, it may be wise to seek legal advice. By following these steps, you can effectively address the situation and work towards unfreezing your assets. Remember, the key is to stay calm, be proactive, and communicate clearly with the exchange’s support team.

Unfreezing Your Crypto Account Using Bitquery

Tracing Funds with Bitquery

When dealing with issues like frozen accounts on cryptocurrency exchanges, it's essential to provide concrete evidence of the legitimate origins of your funds. Bitquery’s investigation service offers powerful tools to track and document the movement of funds, providing the necessary data to back up your claims.

Coinpath® is a tracing tool used by investigators to trace and “follow the money” on-chain using its counterparty information and tracing algorithm.

You can use it for Crypto Investigative solutions as it is well suited for the following:

1. Getting the source and destination of funds
2. Tracking assets and crypto tokens across chains
3. Monitor in real-time with inbound and outbound transactions

A simpler version of the tool is available via the Coinpath API to track funds to/from addresses.

Let's say you are the owner of Wallet XYZ which was compromised and used to receive funds from illicit sources, and this leads to your crypto exchange freezing your account.

You can start by using this API to track the sender, the funds' initial source, and how it moved between addresses. As you know, a fraudster or hacker would definitely want to obfuscate and move funds between tens or even hundreds of addresses before sending it to an exchange to sell.

The Coinpath API uses depth, depicting a flow of funds across multiple addresses. It refers to the levels or stages in the flow of funds from an initial address to subsequent addresses.

You can utilize this feature which is available under the tab Money Flow on the Bitquery Explorer.

Let’s see a typical example of Money Flow:

• Select an address (In this case we use this Ethereum address >> 0x2bd6b013542c3ae24e652888ebf8df35cc15725d )
• Paste on the explorer and hit the search button
• Select Money Flow

You can see the depth level and an option to increase the Inbound (Incoming transactions) and Outbound(Outgoing transactions) in order to generate more visual data for the address and how funds flow between addresses.

Proving Fund Sources with Bitquery Investigation Service

Bitquery's Investigation Service is designed to help individuals or even organizations prove the legitimate source of their funds, particularly in cases where accounts or wallets have been frozen due to suspicious activity. The service provides a comprehensive approach that includes fund tracing, legal support, and cooperation with authorities to ensure a thorough resolution.

Here’s how Bitquery’s Investigation Service helps to do this in a nutshell:

Consultation: Understanding Your Situation

When you submit a form detailing your wallet or account freeze, Bitquery begins with a consultation to understand your specific circ*mstances. This involves:

• Complete Analysis: The team analyzes your case to understand the nuances of your situation including the scale of the event, your jurisdiction, and other details pertaining to the case.
• Identifying Options: Bitquery identifies potential recovery options and strategies tailored to your case, helping you understand the steps involved and the likelihood of success.

Investigation: Deploying Coinpath for Tracing Assets

Once the consultation phase is complete, Bitquery’s expert investigators take over to trace and locate your cryptocurrency assets. This involves:

• Advanced Tracking Tools: The team uses their own Coinpath® MoneyFlow tool to meticulously follow the trail of your funds across various transactions and addresses.
• Detailed Reports: Provide comprehensive reports that document the path of your funds, showing their origin and how they moved through the blockchain network.

Resolution: Working Towards Asset Recovery and Legal Closure

After tracing your funds, Bitquery works towards recovering your assets and ensuring legal resolution. This phase includes:

• Cooperation with Authorities: Collaborating with law enforcement agencies and cryptocurrency exchanges to facilitate the recovery process.
• Ongoing Support: Continuous support throughout the legal process to ensure you have all the necessary documentation and expert guidance.

This works as a comprehensive solution for individuals and organizations needing to prove the legitimate source of their funds and recover assets in the event of an account freeze. By combining advanced tracing tools, expert investigators, and experienced legal support, Bitquery provides a robust framework for navigating the complexities of cryptocurrency fund recovery and ensuring legal closure.

How to Avoid Having Your Funds Frozen

Preventing your cryptocurrency funds from being frozen requires proactive measures and a thorough understanding of the practices and regulations that exchanges follow. Here’s how to avoid having your funds frozen:

1. Stay Compliant with KYC/AML Requirements
2. Complete Verification Processes: Always complete the KYC verification process when you sign up for an exchange. Provide accurate and up-to-date information, including your full name, address, and a valid government-issued ID.
3. Regularly Update Your Information: If there are changes in your personal information, such as a new address, update your details promptly to maintain compliance.
4. Understand and Follow Exchange Policies

Each exchange has its own set of rules and terms of service. Familiarizing yourself with these can help you avoid actions that might trigger a freeze:

• Read the Terms of Service: Thoroughly read and understand the exchange’s terms of service and user agreements.
• Avoid Prohibited Activities: Stay away from activities that are prohibited by the exchange, such as market manipulation, using unauthorized bots, or engaging in fraudulent schemes.
• Be Cautious with New or Unverified Exchanges

Not all exchanges have the same level of security and regulatory compliance. Choosing reputable exchanges can reduce the risk of encountering problems:

• Research Exchanges: Before using an exchange, research its reputation, security measures, and user reviews.
• Use Established Platforms: Prefer exchanges with a solid track record and proper regulatory compliance.
• Use Multiple Exchanges: Diversifying your assets across multiple exchanges can mitigate the impact if one account is frozen. Instead of keeping all your funds in one exchange, consider spreading them across several reputable exchanges.

Secure Your Account

• Use Strong, Unique Passwords: Create strong passwords that combine letters, numbers, and special characters. Avoid using the same password across multiple sites.
• Enable Two-Factor Authentication (2FA): Use 2FA for an added layer of security. This requires you to enter a code from your mobile device in addition to your password when logging in.
• Monitor Account Activity: Regularly check your account activity for any unauthorized transactions or logins. Report suspicious activity immediately.
• Avoid High-Risk Transactions: Steer clear of transactions that are commonly associated with fraud, such as large transfers to newly created wallets or addresses linked to illicit activities.

• Stay Within Limits: Respect any transaction limits set by the exchange. Large, sudden withdrawals or deposits can trigger alerts and potential freezes.
• Document Your Transactions: Keep records of your transactions, including the purpose and the parties involved. This can be useful if you need to explain your activities to the exchange.

In case you are feeling unsure of a particular transaction or address while looking through your account, you can make use of the Bitquery Explorer to scan the transaction or address linked to the transaction. The explorer has a unique feature that indicates that an address has been flagged or marked with annotations related to fraudulent or malicious activity.

Here is a typical example of this address (0x1d50588C0aa11959A5c28831ce3DC5F1D3120d29), which has been identified as potentially involved in deceptive or illegal activities, and caution is advised when interacting with it.

Meanwhile, looking at the page you can see the remark “Address has annotations Fake_Phishing899, Phish / Hack” on it.

Conclusion

Understanding asset freezes in the context of cryptocurrency exchanges is essential for safeguarding your funds and ensuring smooth trading activities. Knowing the causes of asset freezes, what to do about them, and how to avoid them can help you navigate the crypto world more securely and confidently. Keep your money safe and reduce the chance of asset freezes by being aware, proactive, and compliant.

Written by Eugene Nnamdi