Cryptocurrency users in Europe are now facing stricter scrutiny when transferring funds between centralized exchanges. Prominent blockchain investigator ZachXBT recently commented that, amid these increased regulations, moving assets first to a self-custody wallet could offer a more practical solution. His remarks followed a user’s complaint about how transfers between Bybit and its European operations have become significantly more complicated.
Self-custody wallet as a transition step
In an assessment shared on July 2, ZachXBT advised that before transferring funds to another centralized exchange or individual, users should first move their assets into a wallet where they retain full control. By using a non-custodial wallet as an initial stop for deposits and withdrawals, the platform-to-platform transfer process can become more manageable and transparent for users.
ZachXBT believes directing funds to a self-controlled wallet before sending them to another centralized exchange is always the more prudent approach. He also noted the lack of convincing evidence that the Crypto Travel Rule has effectively curbed money laundering.
ZachXBT is known across the crypto sector for his on-chain analyses, tracing suspicious transactions and fund movements. His insights are frequently cited in investigations related to attacks, wallet associations, and major asset transfers, giving him considerable credibility in the field.
Why is it getting harder in Europe?
At the core of these stricter measures is the European Union’s Transfer of Funds Regulation. Starting December 2024, the so-called Crypto Travel Rule will be fully enforced for crypto service providers, requiring exchanges to collect and share specific data about senders and recipients for every transaction. These regulations aim to combat money laundering and terrorist financing in the digital asset space.
Glossary: The Crypto Travel Rule is a compliance measure requiring the sharing of sender and recipient information with each crypto transaction. Within the EU, this falls under the Transfer of Funds Regulation and is applicable to crypto service providers.
As a result, exchanges like Bybit have introduced additional verification steps for deposits and withdrawals in affected areas. Users may now be required to prove ownership of their self-custody wallets, and some transactions might be held pending until compliance checks are completed.
Exchanges adapt to the new landscape
ZachXBT’s recommended procedure relies on using a software or hardware-based self-custody wallet as an intermediary step. However, this does not eliminate the possibility of further scrutiny in every case. For high-value transfers or when risk monitoring systems flag transactions, platforms may still request extra documentation.
Bybit is also restructuring its European operations to align with the region’s regulatory framework. This includes migrating eligible users to licensed regional platforms and launching new stablecoin initiatives focused on USDC and EURC to facilitate compliant use of digital assets across the European Economic Area.
The regulatory debate continues
The Crypto Travel Rule remains one of the most hotly debated regulations in the digital asset industry. Proponents argue that sharing transactional information enhances transparency and makes it easier to track suspicious flows.
Critics, however, contend that such rules drive up compliance costs, slow down transactions, and add unnecessary friction for everyday users. As Europe continues to enforce MiCA and Travel Rule obligations, both exchanges and clients are expected to encounter even stricter controls in the months ahead.
