Cryptocurrency Exchange Fund Freezes: Coinbase, Kraken, Binance.US Demand Letter Strategies
When Coinbase locks your account “pending review,” when Kraken flags your withdrawal for “additional verification,” when Binance.US puts your funds in limbo with generic responses from support—you’re not alone, and you’re not powerless. After handling hundreds of contract disputes and business conflicts over thirteen years as a California-licensed attorney, I’ve seen the pattern: crypto exchanges have enormous contractual discretion to freeze funds, but that discretion isn’t unlimited, and a well-crafted demand letter can be the difference between months of support-ticket purgatory and actual resolution.
This isn’t a rant about crypto regulation or a promise that one magic letter will unlock your six-figure balance overnight. This is a practical guide to understanding what these exchanges actually agreed to do, what leverage you realistically have, and how to structure a demand letter that satisfies their contractual pre-arbitration requirements while creating real pressure for resolution. I’m focusing on the three exchanges that dominate U.S. retail and small-fund trading: Coinbase, Kraken, and Binance.US. If you’re a trader, SaaS founder using exchanges as operational accounts, or someone whose funds are stuck after a security incident, this guide will show you how to escalate beyond the support ticket black hole.
Why Crypto Exchanges Freeze Funds (And Why They Think They Can)
Before you fire off an angry email threatening litigation, you need to understand the regulatory and business reality these exchanges operate within. Coinbase, Kraken, and Binance.US aren’t traditional banks—they’re Money Services Businesses (MSBs) registered with FinCEN and licensed as money transmitters in multiple states. That classification brings serious regulatory obligations that directly affect when and why they freeze accounts.
Under the Bank Secrecy Act and FinCEN’s 2019 guidance on convertible virtual currencies, these exchanges must maintain comprehensive anti-money laundering (AML) programs. That means know-your-customer (KYC) verification, ongoing transaction monitoring, suspicious activity report (SAR) filing, and sanctions screening against Office of Foreign Assets Control (OFAC) lists. When Coinbase tells you they’re holding your funds “for compliance,” they’re usually referring to one of these obligations.
The practical reality is more nuanced than “they have to comply with regulations.” These exchanges have built internal risk-management systems that go beyond what regulators strictly require, because they need to maintain banking relationships and avoid the kind of enforcement action that hit Binance globally in 2023—a FinCEN consent order with massive penalties for AML violations. KuCoin’s 2025 guilty plea and nearly $300 million penalty for operating an unregistered MSB shows that even in a supposedly crypto-friendlier Trump administration, regulators will still pursue major cases.
What this means for you: when an exchange freezes your funds, the hold usually falls into one of these categories:
Regulatory compliance holds. Your account triggered transaction-monitoring alerts (high-value deposits from new sources, patterns matching money-laundering typologies, transactions touching addresses on sanctions lists). The exchange may be required to file a SAR and hold funds during investigation. These holds can be legitimate, but they can also drag on unreasonably long.
Internal risk policy holds. The exchange’s risk team decided your activity looks suspicious based on their own policies—using mixers, frequent transfers to gambling sites, trading patterns that resemble wash trading, or doing business in jurisdictions the exchange considers high-risk. These policies are usually within their contractual rights but are more negotiable than regulatory holds.
Payment and chargeback risk. You funded your account via ACH, debit card, or wire, and the exchange is worried about reversal risk. Traditional banks take days to finalize transfers; crypto moves instantly. Exchanges routinely hold withdrawals until they’re confident the funding transaction won’t reverse.
Security incident investigations. Your account showed signs of unauthorized access, your withdrawal request matches SIM-swap or phishing patterns, or you’re trying to move large amounts shortly after a security event. Sometimes these holds protect you; sometimes they’re overkill.
Law enforcement holds. There’s a subpoena, seizure warrant, or other legal process requiring the exchange to freeze assets. This is the category where your demand letter does the least good—but even here, you have a right to clarity about what’s happening.
The reason I walk through this taxonomy is simple: your demand letter needs to address the actual reason for the freeze, and you need realistic expectations about what leverage you have in each scenario.
What These Exchanges Actually Promised You Contractually
Every demand letter I’ve seen from non-lawyers makes the same mistake: treating the exchange like a bank and assuming FDIC-style guarantees that were never part of the deal. Your leverage comes from the contract you actually signed—the User Agreement or Terms of Service—not from expectations these companies explicitly disclaim.
Coinbase’s Contractual Structure
Coinbase’s U.S. Individual User Agreement is the document that matters. The company is clear about what it is and isn’t: it’s a New York-licensed virtual currency business and money transmitter in 44 states, with Coinbase Custody Trust operating as a New York-chartered trust company. But it’s emphatic that it’s not an FDIC-insured bank, that crypto assets aren’t covered by FDIC or SIPC insurance, and that digital assets can lose all value.
Where Coinbase does make specific promises:
The company will maintain internal controls and procedures designed to secure your assets. They’ll segregate customer funds from company operating funds. They’ll comply with applicable state and federal regulations. And critically, they’ve agreed to a specific dispute-resolution process: before you can file arbitration, you must send them a formal Notice of Dispute describing the facts, your contact information, and the relief you’re requesting. They then have 60 days to investigate and attempt informal resolution.
Coinbase’s help documentation explains they’ll freeze accounts when required by court order or legal authority, when required by law to comply with sanctions programs, or during investigations of unauthorized or incorrect transactions. The key word in all of this is “required.” If a freeze is purely discretionary—if they’re just being cautious or under-resourced—you have more leverage than if there’s an actual legal obligation driving the hold.
Kraken’s Contractual Framework
Kraken’s Global Terms of Service give the company even broader discretion. They explicitly reserve the right to suspend withdrawals or redemptions “entirely and for an indeterminate time” to ensure compliance with terms or legal obligations. Their European Economic Area terms add that they may freeze balances “where it considers that reasonably necessary under applicable law,” including when terminating accounts for suspected fraud or criminal activity.
But even Kraken’s broad language has limits. The suspension has to be tied to compliance with their terms or a legal obligation. If they’re freezing your account for weeks with no explanation and no legal requirement, they’re potentially breaching the implied covenant of good faith and fair dealing that exists in every contract, even one with favorable terms for the business.
Kraken also includes what I call “protective paternalism” language in their support materials—they may hold transactions when they suspect you’re being scammed, with detailed examples of impersonation scams and fake investment advisers. This creates an interesting tension: are they protecting you, or are they using “we’re protecting you from yourself” as cover for slow compliance processes?
Like Coinbase, Kraken requires a written Notice of Dispute with account details, description of the claim, and requested relief. They attempt informal resolution within 60 days. Understanding this structure is essential because your demand letter should simultaneously be a serious escalation to support and a contractually compliant Notice of Dispute.
Binance.US’s Terms and Enforcement History
Binance.US (operated by BAM Trading Services) has perhaps the most interesting backdrop: the global Binance entities paid massive penalties in 2023 for AML and sanctions violations, but Binance.US has maintained it operates as a separate, U.S.-regulated entity. Their Terms of Use authorize them to suspend or restrict services to comply with laws, regulations, government orders, and internal risk or compliance policies.
The key difference with Binance.US is the shadow of the global enforcement action. The company is hypersensitive to compliance issues and has been particularly aggressive about transaction monitoring, sanctions screening, and politically exposed persons (PEP) checks. This means legitimate business activity can trigger holds more easily than at other exchanges, but it also means the company is responsive to well-documented complaints that show you’re not a compliance risk.
Binance.US also requires a formal Notice of Dispute with account information, claim summary, and relief sought, followed by a 60-day informal investigation period before AAA arbitration can be filed. Federal courts have consistently enforced these arbitration requirements, compelling user lawsuits into arbitration even in high-profile Terra/UST collapse cases.
Building Your Evidence File Before You Write Anything
The difference between a demand letter that gets attention and one that gets a form response is documentation. Before you draft anything, you need to build a file that proves three things: you’re a legitimate user, the freeze is unjustified or has lasted unreasonably long, and you’ve attempted to resolve this through normal channels.
Account history and KYC compliance. Download everything that shows you’ve complied with the exchange’s requirements. Screenshots of your verified KYC status, dated photos of your government ID submission, proof that you’ve completed any additional verification steps they requested. If they claim you didn’t respond to verification requests, you need proof that you did—or proof that you never received the requests.
Transaction history and source of funds. Export your complete transaction history showing deposits, trades, and withdrawal attempts. For any deposits over $10,000 or that might look unusual, prepare documentation of the source: wire transfer receipts showing the funds came from your business bank account, explanation of large crypto deposits (sale of NFT with transaction hash, business revenue from identified sources, inheritance with documentation).
If you used the account for business purposes, have your business formation documents ready—operating agreement, business bank account statements showing the connection between your business and the exchange deposits. One pattern I see repeatedly: founders use exchanges as operational accounts for their crypto businesses, then get frozen because they can’t adequately document the business activity.
Communications timeline. Create a spreadsheet with every single interaction: date, time, support ticket number, method (email, support portal, social media), summary of your request, summary of their response or non-response. This timeline is essential for showing that you’ve been reasonable and they’ve been evasive or slow.
On-chain and off-chain evidence. If the issue involves specific transactions, gather everything. Transaction hashes for on-chain activity. Blockchain explorer screenshots. If they claim you sent funds to a sanctioned address or a mixer, you need to be able to show the address isn’t on OFAC lists and explain the business purpose.
Regulatory research on your specific situation. Spend time researching whether exchanges are actually required to hold funds in situations like yours. Did you trigger a CTR or SAR threshold? Are you in a jurisdiction that creates compliance complications? Have you been doing business with counterparties in sanctioned countries? You need to understand whether the freeze is legally required or just risk-averse policy.
The goal is to build a file that lets you write a demand letter that says: “I am a verified customer who has complied with all requirements, my activity has legitimate business purposes that I can document, I’ve attempted resolution through support for X weeks with no meaningful response, and your hold appears to be based on [specific policy concern] that I can address with the following documentation.”
Crafting a Demand Letter That Actually Works
A demand letter to a crypto exchange needs to accomplish four things simultaneously: it needs to be a serious escalation that shows you’re not just another angry support ticket, it needs to satisfy the contractual pre-arbitration Notice of Dispute requirements, it needs to create regulatory and reputational pressure without making empty threats, and it needs to give them a clear path to resolution.
The Structural Requirements
Every exchange’s dispute-resolution process requires specific information in your Notice of Dispute. Your letter must include your full name as it appears on the account, account email and any account numbers or user IDs, detailed description of the dispute including dates and amounts, clear statement of the relief you’re requesting, and your contact information for settlement discussions.
Missing any of these elements can give the exchange grounds to claim your Notice was defective, resetting the 60-day informal resolution clock. Don’t let sloppy drafting cost you two months.
The Tone That Gets Attention
The tone mistake I see most often: either too emotional (long rants about incompetent support) or too threatening (citing laws you clearly don’t understand and threatening class actions you have no intention of filing). The tone that works is what I call “informed and firm”: you understand their business, you’ve identified the specific contractual or policy issue, you’re prepared to escalate through appropriate channels, and you’re giving them a reasonable opportunity to resolve this before you do.
You’re not begging. You’re not ranting. You’re providing notice that a customer who understands their rights is prepared to use the contractual dispute-resolution process, file regulatory complaints, and if necessary proceed to arbitration—all of which cost them more than just releasing your funds or providing a clear explanation.
The Regulatory Pressure Points (Used Carefully)
Every exchange cares intensely about regulatory complaints because they operate under multi-state licenses that require good standing with regulators. But you need to understand which complaints actually create pressure and which just make you look like you’re flailing.
Effective regulatory pressure: mentioning that you’ve documented this situation and will file a complaint with the Consumer Financial Protection Bureau (CFPB) through their online complaint database if this isn’t resolved within the informal resolution period. Even though CFPB enforcement has slowed under the current administration, these exchanges still track complaint metrics and know that complaint patterns can trigger state regulator attention.
If the exchange holds a state money-transmitter license in your state, noting that you’ll escalate to your state’s Department of Financial Services or Attorney General’s office can be effective—but only if you’re actually in a state where they’re licensed. Threatening to complain to the New York DFS when you’re in California and they don’t have a NY license just shows you didn’t do your homework.
What doesn’t work: threatening SEC complaints about securities violations, threatening FBI or DOJ complaints about fraud when there’s no actual fraud, citing laws that don’t apply to the situation, or claiming FDIC insurance issues when crypto assets were never FDIC-insured.
The Arbitration Threshold
Here’s where the 2023 Supreme Court decision in Coinbase v. Bielski matters: the Court held that when an exchange appeals a denial of a motion to compel arbitration, district courts must stay litigation pending the appeal. This strengthened the practical enforceability of these arbitration clauses.
What this means for your demand letter: don’t threaten class actions or federal court litigation. The exchange knows these threats are empty—their arbitration clause with class-action waiver will be enforced. Instead, make it clear you understand the contractual process: “If this matter is not resolved within the 60-day informal resolution period, I will proceed to file for arbitration with the American Arbitration Association under the consumer rules as required by Section [X] of the User Agreement.”
That sentence tells them three things: you’ve read the contract, you’re serious enough to pay the AAA filing fee, and you’re probably represented or sophisticated enough to handle arbitration. All three make settlement more attractive than paying their lawyers to handle arbitration.
Exchange-Specific Demand Letter Template
Below is a template structured to work for Coinbase, Kraken, or Binance.US. You’ll need to customize it based on your specific situation and the exchange involved. The bracketed sections show where to insert exchange-specific information and your own details.
FORMAL NOTICE OF DISPUTE
[Exchange Name] Account Freeze/Restriction
VIA EMAIL AND CERTIFIED MAIL
Date: [Current Date]
To: [Exchange Dispute Resolution Address]
For Coinbase:
Coinbase, Inc.
Attn: Dispute Resolution
100 Pine Street, Suite 1250
San Francisco, CA 94111
Email: [disputes email from current User Agreement]
For Kraken:
Payward, Inc. (Kraken)
Attn: Legal Department – Disputes
237 Kearny St. #102
San Francisco, CA 94108
Email: [disputes email from current Terms]
For Binance.US:
BAM Trading Services Inc.
Attn: Legal Department – Notice of Dispute
One Letterman Drive, Building C, Suite 200
San Francisco, CA 94129
Email: [disputes email from current Terms of Use]
RE: Formal Notice of Dispute – Account [Your Account Email/User ID]
This letter serves as formal notice of a dispute pursuant to Section [cite specific section] of the [Exchange Name] User Agreement/Terms of Service, and requests immediate resolution of the issues described below.
I. ACCOUNT INFORMATION
Full Name: [Your Full Legal Name]
Account Email: [Your Account Email]
Account User ID/Number: [If available]
Account Creation Date: [Approximate date]
Verification Status: [Fully verified / Level 2 verified / etc.]
Contact Information for Resolution:
Phone: [Your Phone Number]
Email: [Your Email – can be same as account email]
Mailing Address: [Your Full Address]
II. DESCRIPTION OF THE DISPUTE
On [date], my [Exchange Name] account was [frozen/restricted/had withdrawal capabilities suspended] without adequate prior notice or explanation. Specifically:
Timeline of Events:
[Date]: [Describe what happened – e.g., “Attempted to withdraw $45,000 in Bitcoin to my verified external wallet”]
[Date]: Received notification that [describe notification – e.g., “withdrawal was flagged for review” or “account was restricted pending additional verification”]
[Date]: Submitted support ticket #[number] requesting explanation and providing [describe documentation you provided]
[Date]: [Received response/No response received after X days]
[Continue with detailed timeline through present]
Current Status: As of this notice, [amount] in [cryptocurrency/USD] remains inaccessible in my account. I have been unable to trade, withdraw, or access these funds for [X] days/weeks.
Attempted Resolutions: I have submitted [number] support tickets (ticket numbers: [list]), responded to every request for additional information within [timeframe], and provided all requested documentation including [list key documents provided].
III. GROUNDS FOR RELEASE OF FUNDS
I am a legitimate, verified customer with a documented history of compliant use of [Exchange Name] services. The restriction on my account is either unjustified or has continued beyond any reasonable investigation period.
Documented Compliance:
My account was fully verified on [date], including [government ID verification/address verification/any additional verification completed]. All deposits to my account came from legitimate, documented sources: [describe sources – e.g., “wire transfers from my business bank account at [Bank Name], account ending in [last 4 digits]” or “transfers from my verified [Other Exchange] account with matching identity verification”].
The activity flagged for review appears to be [describe if you know – e.g., “my business-related trading activity” or “a large withdrawal that is normal for my business operations”]. This activity has straightforward business justification: [explain the business context – e.g., “I operate an e-commerce business that accepts cryptocurrency payments, requiring regular conversion to USD” or “I am consolidating holdings across exchanges following security recommendations”].
Documentation Available: I have comprehensive documentation supporting the legitimacy of my account activity, including [list what you have – e.g., “business formation documents, business bank account statements showing the source of deposited funds, transaction records, communications with counterparties, invoices for business services”].
Absence of Prohibited Activity: My account has not engaged in any prohibited activities under your Terms of Service or applicable law. Specifically:
- All transactions are clearly connected to my verified identity
- No deposits originated from sanctioned jurisdictions or appeared on OFAC lists
- No use of mixing services or anonymization tools
- No engagement in market manipulation, wash trading, or other prohibited trading practices
- No involvement with illicit marketplaces, gambling operations prohibited in my jurisdiction, or other restricted activities
- Full cooperation with all verification requests and security protocols
IV. LEGAL AND CONTRACTUAL BASIS FOR RELIEF
Your [User Agreement/Terms of Service] grants [Exchange Name] discretion to restrict accounts for compliance purposes, but that discretion is not unlimited. Under Section [cite relevant section], account restrictions must be tied to specific legal requirements, regulatory obligations, or Terms violations.
I have not violated any Terms of Service provisions. If [Exchange Name] believes there is a Terms violation, I request immediate specification of which provision was violated and what evidence supports that determination.
If the account restriction is based on regulatory compliance, I request clarity on the specific regulatory requirement that prevents release of my funds. As an MSB licensed in multiple states, [Exchange Name] has obligations under the Bank Secrecy Act and FinCEN guidance, but those obligations do not justify indefinite holds without explanation where the customer has provided comprehensive documentation.
Good Faith and Fair Dealing: Even contracts with broad discretionary clauses require good faith performance. An indefinite hold without substantive explanation or clear path to resolution, despite repeated customer attempts to provide documentation, raises serious questions about whether [Exchange Name] is operating in good faith.
V. REGULATORY CONSIDERATIONS
I have documented this situation thoroughly and have reviewed my options for escalation. If this matter is not resolved within the informal resolution period provided in your dispute-resolution process, I will pursue the following:
CFPB Complaint: File a detailed complaint with the Consumer Financial Protection Bureau documenting the timeline, my attempts at resolution, and [Exchange Name]’s failure to provide adequate explanation or access to my funds.
State Regulator Complaint: File a complaint with [Your State] Department of Financial Services/Division of Banking regarding [Exchange Name]’s money-transmitter license obligations and handling of customer funds.
[If applicable] Banking Partner Escalation: Provide documentation to [Exchange Name]’s banking partners regarding handling of customer complaints and access to funds.
These complaints will be factual documentation of the timeline and circumstances, not allegations of fraud or legal violations. However, given the volume of similar complaints in CFPB databases regarding crypto exchanges and “funds not available when promised,” regulatory attention to patterns of extended holds is increasing.
VI. ARBITRATION NOTICE
This letter constitutes the required Notice of Dispute under Section [cite section] of the [User Agreement/Terms of Service]. Per the agreement, [Exchange Name] has [60] days from receipt of this notice to investigate and attempt informal resolution of this dispute.
If the matter is not resolved within that period, I will proceed to file for binding arbitration with the American Arbitration Association under the Consumer Arbitration Rules, as required by the User Agreement. While I prefer to resolve this matter efficiently through your internal dispute process, I am prepared to pursue arbitration if necessary.
VII. REQUESTED RELIEF
I request immediate resolution through one of the following:
Primary Request: Full restoration of account access and withdrawal capabilities, allowing me to withdraw the [amount] in [cryptocurrency/USD] currently held in my account.
Alternative Resolution: If there is a specific compliance concern that prevents immediate release of all funds, I request:
- A clear, detailed explanation of the specific legal or regulatory requirement preventing release
- Identification of any specific transactions or activity that triggered the hold
- A defined list of additional documentation or information needed to resolve the concern
- A reasonable, specific timeframe for resolution once that information is provided
- If only a portion of funds are subject to compliance concerns, immediate release of the portion not implicated
Minimum Acceptable Resolution: At minimum, if funds cannot be immediately released, I require a substantive response explaining the specific basis for the continued hold, what regulatory authority requires it, and what concrete steps would lead to release.
VIII. TIMEFRAME FOR RESPONSE
I request a substantive response within [10] business days of your receipt of this notice, with meaningful progress toward resolution within the 60-day informal resolution period required by the User Agreement.
This matter is time-sensitive. The funds in question represent [explain impact – e.g., “working capital essential to my business operations” or “a significant portion of my personal savings”]. Each additional day of restricted access causes [describe concrete harm – e.g., “ongoing business disruption and lost opportunities” or “financial hardship and inability to meet obligations”].
IX. GOOD FAITH RESOLUTION
I believe this situation results from [exchange’s] compliance protocols flagging legitimate activity that can be easily explained with proper documentation review. I am committed to providing any additional information needed to resolve compliance concerns, and I believe resolution is possible without arbitration if [Exchange Name] will engage substantively with the documentation I have provided and the explanations I have offered.
I am available for a call or video conference to discuss resolution and to provide any additional information that would facilitate closure of this matter.
X. PRESERVATION OF RIGHTS
Nothing in this letter waives any rights I have under the User Agreement, applicable law, or equity. This letter is provided in good faith to facilitate resolution but does not constitute acceptance of any liability or agreement to any specific resolution terms.
I expect a professional, substantive response within the timeframe stated above.
Respectfully,
[Your Full Name]
[Your Signature if sending hard copy]
[Date]
Enclosures:
- Account verification documentation
- Transaction history showing source of funds
- [List any other supporting documents you’re including]
cc:
- [Your attorney if you have one]
- [Only if sending]: Consumer Financial Protection Bureau (as notice of documented complaint if not resolved)
After You Send the Demand Letter: Escalation Strategy
Once your demand letter is sent (and I recommend both email and certified mail with return receipt to prove delivery), you enter a waiting period. The exchange’s dispute-resolution process typically gives them 60 days, but you’re not passively waiting—you’re executing a strategic escalation plan.
Weeks 1-2: Immediate Follow-Up
Send a brief follow-up email one week after confirmed delivery asking for acknowledgment of receipt and estimated timeline for substantive response. This shows you’re monitoring actively. If you get a form response (“your issue has been escalated to our specialist team”), reply asking for the specialist’s name or case reference number and expected response timeframe.
Document everything. Every auto-reply, every form response, every actual communication gets logged in your timeline spreadsheet with date, time, and content.
Weeks 3-4: CFPB Complaint Preparation
If you’re not getting substantive responses, prepare your CFPB complaint but don’t file it yet. The CFPB complaint database is public, and exchanges monitor their complaint rates carefully. The threat of filing is often more useful than filing itself during the informal resolution period.
Draft your complaint in a separate document, making sure it’s factual and detailed: dates, amounts, ticket numbers, documents provided, responses received. The quality of your complaint matters—vague complaints get vague responses, but detailed complaints with clear documentation can trigger actual internal review.
Weeks 5-8: Strategic Regulatory Pressure
As you approach the end of the informal resolution period, you have several pressure points you can use strategically:
File the CFPB complaint if you still haven’t received substantive engagement. The complaint will be visible in public databases within a few weeks, and the exchange will be required to respond. In your complaint, reference your demand letter and the lack of meaningful response.
If you’re in a state where the exchange holds a money-transmitter license, research your state’s complaint process. Some states have efficient financial-services complaint systems; others are useless. California’s DBO, New York’s DFS, and Texas’s Department of Banking all take MSB complaints seriously. File a complaint with your state regulator if the exchange is licensed there.
Consider whether there’s an actual law-enforcement issue. If you believe your account was accessed by unauthorized parties or if the exchange’s actions have created reportable losses, you may need to file an IC3 (FBI Internet Crime Complaint Center) report. This is different from threatening FBI involvement—you’re making a factual report about potential unauthorized access or fraud.
Week 8+: Arbitration Decision Point
If you reach the end of the 60-day period without resolution, you face a decision: file for arbitration or walk away. Arbitration with AAA or JAMS will cost you filing fees (typically $200-$400 for consumer arbitrations), and you’ll likely need a lawyer if the amount in dispute is substantial. The exchange will certainly have lawyers.
But here’s what I see happen repeatedly: the act of filing for arbitration, not just threatening it, often produces settlement discussions. Once the exchange’s legal department is formally involved and they’re looking at arbitrator fees and lawyer time, they become much more interested in resolving the underlying issue.
Calculate whether arbitration makes economic sense. If you have $50,000 frozen, arbitration is probably worth it even with legal fees. If you have $5,000 frozen, the economics are harder. You may be able to handle the arbitration yourself if you’re comfortable with quasi-legal procedures, but it’s genuinely complex.
When the Freeze Might Actually Be Legitimate (And What That Changes)
Not every freeze is a mistake or overreach. Sometimes the exchange has legitimate compliance reasons or is actually protecting you from fraud. Understanding when this is the case changes your strategy significantly.
OFAC and Sanctions Holds
If your account received funds from an address on OFAC’s Specially Designated Nationals list, or if you transacted with counterparties in sanctioned jurisdictions (Iran, North Korea, parts of Russia, etc.), the exchange may be legally required to freeze assets. These are the hardest situations because the exchange genuinely cannot release funds without risk of massive penalties.
Your demand letter in these situations should focus on documentation: if the exchange believes there’s a sanctions issue, you need them to specify exactly what transaction or address triggered the concern. Often these are false positives—blockchain analysis tools flag addresses that touched sanctioned addresses several hops back in the chain. If you can show your actual counterparty was legitimate and you had no reason to know about upstream connections, you may be able to get funds released.
SAR-Related Holds
If your activity triggered a Suspicious Activity Report filing, the exchange may hold funds during the investigation. The bank Secrecy Act actually prohibits them from telling you they’ve filed a SAR, which is why you get vague “compliance review” language instead of specifics.
The frustrating reality is that SAR-related investigations can legitimately take weeks. But they shouldn’t take months if you’re providing documentation. Your demand letter should focus on the reasonableness of the timeline and your provision of documentation, not on demanding to know whether a SAR was filed.
Actual Security Incidents
If your account showed signs of unauthorized access—logins from unusual locations, password changes followed by immediate withdrawal attempts, patterns matching known SIM-swap attacks—the exchange may be legitimately protecting you by freezing the account pending verification.
These situations require a different approach: work with the exchange’s security team, provide whatever additional verification they need, and document that you’re the legitimate account owner. Your demand letter is less about “release my funds immediately” and more about “I’ve completed all verification steps you requested; please specify what additional verification is needed.”
The Mixed-Source Problem
One pattern I see repeatedly: founders who built legitimate crypto businesses but whose early funding came from sources that now look problematic. Maybe you mined coins years ago and moved them through exchanges that are now flagged for AML issues. Maybe your business accepted payments from customers who turned out to be bad actors.
If this is your situation, your demand letter needs to focus on the legitimate business operations and on severing the connection between current activity and historical issues. Provide extensive documentation of your current business, show that problematic sources are no longer in use, and offer to segregate potentially problematic funds if necessary to release clean funds.
The Hard Truth About When to Walk Away
Sometimes the cost of fighting exceeds the value of the funds, or the likelihood of success is too low to justify the effort. I don’t like telling clients to walk away, but sometimes it’s the right business decision.
Walk away if the amount in dispute is less than $2,000 and you’d need to hire counsel for arbitration. The economics don’t work unless this is a matter of principle you’re willing to pay for.
Walk away if your activity genuinely violated the Terms of Service in ways you can’t reasonably dispute—you used the account for prohibited purposes, you provided false information during KYC, or you engaged in activity you knew was problematic. Demand letters don’t fix actual violations.
Walk away if law enforcement has formally seized the funds under asset-forfeiture procedures. At that point the exchange isn’t holding your funds; the government is. Your dispute is with the law-enforcement agency, not the exchange.
Consider walking away if you’ve pursued escalation through demand letter, CFPB complaint, and state regulator for three months with no meaningful response and the amount doesn’t justify arbitration costs. Sometimes exchanges genuinely stonewall, and the only winning move is to move on and avoid doing business with them again.
But walk away strategically: file your CFPB complaint documenting the situation, leave detailed reviews on appropriate platforms, and make sure other users can learn from your experience. The best revenge against exchanges that abuse their discretion is creating public records that affect their ability to attract new customers.
Practical Tips I’ve Learned from Actually Doing This
After handling these situations for years, here are the patterns and tips that don’t fit neatly into other sections:
The support-ticket trap. Every exchange’s support system is designed to handle routine questions, not complex disputes. Escalating through support alone rarely works because you’re talking to tier-1 representatives reading from scripts. Your demand letter bypasses support by going directly to legal/disputes email addresses and triggering contractual resolution processes.
Timing matters more than you think. Exchanges are businesses with quarterly cycles, regulatory review periods, and internal prioritization. A demand letter sent during a quarter when the exchange is dealing with regulatory scrutiny gets more attention than one sent during a quiet period. I can’t predict those cycles, but I can tell you that persistence matters—following up consistently at reasonable intervals keeps your issue visible.
The documentation quality gap. Most people underestimate how much documentation helps. A demand letter supported by 30 pages of organized exhibits (account history, source-of-funds documentation, business records, communication timeline) gets taken seriously in a way that a demand letter with no supporting materials never does.
Exchange employees aren’t your enemy. The people handling your case are compliance officers and lawyers doing their jobs under serious regulatory pressure. Treating them like criminals or idiots guarantees you’ll get the minimum contractual response. Treating them as professionals who need to see proper documentation to approve your issue often produces better results.
The arbitration filing that never happens. Many cases settle between the demand letter and arbitration. Exchanges know arbitration is expensive for them too—they’ll pay outside counsel hundreds of dollars per hour to handle the case, plus arbitrator fees. If your demand letter shows you’re serious and you have a documented case, settlement becomes attractive.
When to hire counsel. If the amount in dispute exceeds $25,000, if the legal issues are complex (sanctions concerns, identity theft, business structure questions), or if you’re realistically proceeding to arbitration, hire a lawyer. The investment usually pays for itself in better results and faster resolution. Below that threshold, you can often handle this yourself using resources like this guide.
FAQ
Why won’t Coinbase, Kraken, or Binance.US just tell me why my funds are frozen?
The vague “under review” or “compliance check” responses you get from exchanges aren’t usually designed to frustrate you—they’re driven by two real constraints. First, the Bank Secrecy Act prohibits financial institutions from disclosing that they’ve filed a Suspicious Activity Report. If your transaction pattern triggered SAR filing, the exchange legally cannot tell you that’s the reason for the hold. They’re stuck giving you generic compliance language even when they’d prefer to be more specific.
Second, exchanges have learned through experience that detailed explanations of why an account was flagged can help bad actors refine their methods. If they tell everyone exactly which behaviors trigger security reviews, they’re essentially providing a roadmap for avoiding detection. This is why your demand letter needs to force specificity through a different mechanism: by providing comprehensive documentation of your legitimate activity and asking them to identify what specific documentation is still missing or what specific Terms violation they’re concerned about.
The practical reality is that exchanges have three tiers of information: information they legally can’t share (SAR filings, details of law-enforcement requests), information they won’t share because it would compromise security (specific transaction-monitoring thresholds and patterns), and information they should share but often don’t because their compliance teams are under-resourced (what specific additional documentation would resolve the concern, what estimated timeline is reasonable). Your demand letter targets that third category.
How long can these exchanges legally keep my money frozen?
There’s no bright-line legal limit on how long a crypto exchange can hold funds during a compliance review, which is both true and misleading. What’s actually happening is that the exchange’s discretion to freeze accounts is tied to specific purposes—compliance with legal requirements, investigation of Terms violations, security incident response—and the reasonableness of the hold depends on whether those purposes justify the timeline.
If an exchange is holding funds because they’re awaiting a response from law enforcement on whether there’s a seizure warrant or subpoena, that hold can legitimately last weeks. The exchange isn’t creating the delay; the government is. If they’re holding funds while conducting AML review of a transaction pattern that involves hundreds of addresses and multiple blockchains, that review can legitimately take several weeks.
But if they’ve asked you for verification documents, you’ve provided them within 48 hours, and they’re still sitting on your funds six weeks later with no substantive response, that timeline becomes increasingly difficult to justify. The implied covenant of good faith and fair dealing in every contract requires that discretionary powers be exercised reasonably. Indefinite holds with no explanation and no clear path to resolution start to look like breaches of that duty.
Your demand letter addresses this by creating a documented timeline that shows exactly how long the hold has lasted, what you’ve provided, when you provided it, and what responses you’ve received. That documentation becomes critical if you end up in arbitration or if regulators review the exchange’s practices. Arbitrators are skeptical of “it’s taking as long as it takes” arguments when the customer has demonstrably cooperated and the exchange hasn’t provided any concrete explanation of what’s causing delay.
Will filing a CFPB complaint actually help or just annoy them?
CFPB complaints are public records that exchanges must respond to, and they take them seriously for two reasons that have nothing to do with whether the current CFPB leadership is actively enforcing against crypto companies. First, state regulators and multi-state licensing authorities look at CFPB complaint data when reviewing money-transmitter license renewals. An exchange with a high rate of “money not available when promised” complaints or unresolved disputes has a harder time maintaining licenses and expanding to new states.
Second, complaint patterns in the CFPB database become evidence in class actions and regulatory actions even if they’re filed years after the complaints themselves. Exchanges know that complaint data is discoverable in litigation, and that patterns of similar complaints about funds access can support broader claims about business practices. A single complaint rarely moves the needle, but it contributes to a pattern that has commercial and legal consequences.
The mistake people make is thinking CFPB complaints are like Better Business Bureau complaints—just consumer gripes that companies can ignore. CFPB complaints trigger actual response requirements, and exchanges must respond through the CFPB system within timeframes the CFPB sets. Those responses become public records. This means your detailed, well-documented CFPB complaint often produces a more substantive explanation than months of support tickets, because the exchange knows the response will be publicly visible.
The timing of your complaint matters. Filing it during your demand letter’s 60-day informal resolution period gives the exchange an opportunity to resolve through their own process before you create a public record. Filing it if they haven’t responded substantively by day 45-50 increases pressure without prematurely escalating. Either way, the complaint should be factual, detailed, and include your demand letter timeline—this isn’t a place for emotional venting, it’s creating a legal record.
Can I really handle arbitration against these exchanges without a lawyer?
Whether you can handle AAA or JAMS arbitration without counsel depends on three factors: the complexity of your case, the amount in dispute, and your comfort with quasi-legal proceedings. I’ve seen pro se individuals do well in straightforward cases—account frozen after verified user provided all requested documentation, no Terms violations, exchange simply stopped responding—where the arbitrator can see the pattern immediately.
What makes a case straightforward: you’re a verified user with a clear transaction history, your funds came from documented legitimate sources, you responded promptly to every exchange request, you have a timeline showing weeks or months of non-response from the exchange, there are no complicating factors like mixed sources of funds or business structures, and you’re seeking simple relief (release funds or provide specific explanation). In those cases, you can present your evidence chronologically, submit your documentary exhibits, and let the pattern speak for itself.
What makes a case complex and probably requires counsel: the exchange has identified specific transactions they claim violate Terms of Service, there are questions about whether funds originated from sanctioned jurisdictions or problematic sources, your account was used for business purposes and there are entity-structure questions, there’s disagreement about whether you completed verification requirements, or the exchange is claiming you engaged in market manipulation or other sophisticated violations. These cases require understanding both the technical legal issues and the blockchain/financial evidence that supports your position.
The amount threshold where most people should hire counsel is around $25,000. Below that, the cost of legal representation may exceed the value in dispute unless you can find a lawyer willing to work on contingency (rare in arbitrations against exchanges) or limited-scope representation just for brief-writing and key hearing preparation. Above that threshold, the cost of counsel is usually worth it because experienced counsel knows how to frame issues for arbitrators and how to handle procedural issues that can derail pro se presentations.
If you do proceed pro se, invest time in understanding AAA consumer arbitration rules, prepare a detailed chronological statement of facts with supporting exhibits organized clearly, focus on what the exchange contractually promised and where they failed to perform, avoid making legal arguments about issues you don’t fully understand, and remember arbitrators are looking for fairness and reasonableness, not technical legal victories. The exchange will have lawyers who will try to make the case look complex; your job is to show it’s actually simple—they took your money, you did everything they asked, they refused to perform or explain, and that breaches basic contractual good faith.
What if I used mixing services or other privacy tools and that’s why they froze my account?
Using cryptocurrency mixers, tumblers, privacy coins for transfers, or coin-join services is one of the few situations where the exchange has legitimate grounds to freeze your account indefinitely and where your demand letter is unlikely to succeed. These services are specifically designed to obscure transaction history, and they’re heavily associated with money laundering and sanctions evasion. When exchanges see funds that passed through mixers, their compliance teams typically flag the account immediately.
The legal reality is that exchanges’ Terms of Service usually either explicitly prohibit mixer use or include language about not using the service for money laundering or obscuring transaction sources. Even if the Terms don’t explicitly name mixers, using them creates exactly the transaction pattern that AML regulations require exchanges to flag and investigate. You can’t complain that the exchange won’t explain why you’re frozen when you deliberately obscured the fund sources they’re required to trace.
If this is your situation, your demand letter needs to take a completely different approach. You can’t argue that the exchange is being unreasonable—they’re not. Instead, focus on whether there are non-mixer-related funds in the account that can be segregated and released. If you have $10,000 that came through a mixer and $40,000 that came from clearly documented legitimate sources, offer to forfeit or leave frozen the problematic funds in exchange for release of the clean funds.
You can also argue for reasonableness in how long the investigation takes if you’re providing extensive documentation that the funds that went through the mixer had legitimate sources before entering the mixer. If you can show—with blockchain evidence, exchange records from before the mixing, and documentation of the original legitimate transaction—that you used the mixer for privacy reasons rather than criminal purposes, some exchanges will eventually release funds. But this is a months-long process that usually requires counsel, and it has a much lower success rate than cases where your transaction history is transparent.
The hard lesson here: privacy tools that are theoretically legal to use in many jurisdictions are practically incompatible with using regulated exchanges. If you value privacy over exchange access, you need to accept that you’re opting out of the regulated exchange system. If you want to use exchanges, you need to accept that you’re opting into full transaction transparency.
What happens if there’s actually a law-enforcement hold on my account?
If your account is frozen because of a subpoena, seizure warrant, or other formal law-enforcement action, your demand letter to the exchange has very limited utility. The exchange isn’t making a discretionary decision to hold your funds—they’re complying with legal process from a government agency. They cannot release the funds without violating the law-enforcement order, and arguing that they’re breaching their user agreement doesn’t change that.
What your demand letter should focus on in this situation is disclosure and clarity. Ask the exchange to confirm whether there is law-enforcement involvement, what agency is involved, whether the funds are merely frozen pending investigation or have been formally seized, and what point of contact at the agency you can reach to understand the status. Exchanges vary in how much they’ll disclose, but many will at least confirm whether law enforcement is involved and whether you need to contact a specific agency.
If funds have been formally seized under civil asset forfeiture, you’re now in a very different legal situation. The exchange isn’t holding your funds anymore—the government is. You have notice and contest rights under civil forfeiture procedures, but those are complex federal-law issues that require counsel. Many civil forfeiture cases involve amounts under $25,000, where the cost of contesting the forfeiture exceeds the value of the seized assets. This is deliberate—law enforcement knows most people won’t fight small forfeitures because the legal costs don’t make economic sense.
If funds are frozen pending a criminal investigation but haven’t been formally seized, your situation is more uncertain. The investigation could close with no charges, at which point the exchange should release the funds. But investigations can take many months, and you may have no visibility into what’s happening. Your demand letter can at least establish that you’re cooperating, you’re available to answer questions, and you’re requesting updates on timeline.
One important note: if you’re contacted by law enforcement about your exchange account, hire criminal defense counsel immediately before responding to any questions. Anything you say to law enforcement without counsel can be used against you in a criminal investigation, and what you think is exculpatory information may actually provide evidence of violations you weren’t aware of. This is one area where self-help is genuinely dangerous.
Is it worth suing them instead of going through arbitration?
Filing a lawsuit in federal or state court instead of following the arbitration process the exchange’s Terms require is almost certainly a waste of time and money. These exchanges have been sued hundreds of times, and their arbitration clauses have been consistently enforced by courts. The Supreme Court’s 2023 decision in Coinbase v. Bielski made arbitration clauses even stronger by requiring courts to stay litigation pending appeals of orders on motions to compel arbitration.
What this means practically: if you file a lawsuit, the exchange will immediately file a motion to compel arbitration. The court will almost certainly grant that motion and dismiss your lawsuit or stay it pending arbitration. Even if you win on some narrow procedural issue at the trial court level and the court denies the motion to compel, the exchange will appeal that decision, and your case will be stayed for months or years while the appeal is resolved. You’ll have spent money on filing fees and lawyer time to get nowhere.
The few situations where litigation makes sense are ones involving statutory rights that can’t be waived through arbitration clauses—certain employment law claims, some consumer protection statutes in a few states—and those are extremely rare in the crypto exchange context. The breach-of-contract and good-faith-and-fair-dealing claims you’re realistically pursuing are well within the scope of arbitrable disputes.
Arbitration isn’t inherently worse for consumers than litigation. AAA and JAMS consumer rules are designed to be accessible to individuals, filing fees are lower than court filing fees for many claims, and arbitrators often have more subject-matter expertise than judges hearing general contract cases. The lack of appeal rights in arbitration can be a disadvantage if you lose, but it also means faster resolution if you win.
The real question isn’t “can I sue instead of arbitrate”—you can’t, not effectively. The real question is whether arbitration is worth pursuing at all given the costs and the likelihood of success. That’s a business decision that depends on the amount in dispute, the strength of your case, and whether you’re willing to invest the time and money. But if you decide to pursue formal dispute resolution, arbitration is your path.
Why do these exchanges have such terrible customer support if they’re legitimate businesses?
The support quality problem at crypto exchanges is real but isn’t usually because they’re scams or don’t care about customers—it’s because they grew extremely fast during crypto bull runs, handle millions of accounts with complex technical and compliance issues, and have compliance obligations that limit what support representatives can say. Understanding this doesn’t make the experience less frustrating, but it does affect your strategy.
During 2020-2021, exchanges like Coinbase and Binance.US grew from handling hundreds of thousands of users to millions of users in months. Support infrastructure couldn’t scale that fast. They hired thousands of tier-1 support representatives who could handle routine questions but couldn’t make judgment calls on compliance holds or complex account issues. The people you talk to through support tickets generally can’t see why compliance flagged your account and can’t make decisions to release frozen funds even when they’d like to help.
The compliance constraint is equally important. When an account is flagged for AML review or potential sanctions issues, support representatives are often prohibited from sharing details because sharing those details could compromise investigations or violate legal restrictions on disclosing SAR filings. The representative isn’t being deliberately unhelpful—they literally don’t have authority or information to give you meaningful responses.
This is why your demand letter bypasses support entirely. You’re not asking a tier-1 representative to make a decision they can’t make. You’re triggering the contractual dispute-resolution process that routes your issue to people with actual decision-making authority—compliance managers, legal counsel, dispute resolution specialists. Those people can see why your account was flagged, can evaluate whether the hold is still justified, and can make decisions to release funds or escalate to law enforcement if necessary.
The other reason support quality is poor is economic: exchanges make money on transaction fees, not on customer support. They don’t have strong economic incentives to invest in premium support infrastructure the way a bank does, because their business model doesn’t depend on customer service quality the same way. This is gradually changing as the industry matures and exchanges compete for institutional customers who demand better support, but retail users are still getting the minimum viable support level.
Your leverage comes from making your case expensive for them to ignore—through formal dispute processes, regulatory complaints, and eventually arbitration if necessary. You’re not trying to convince a support representative who has no authority. You’re trying to make it more expensive for the company to keep holding your funds than to investigate and resolve your issue.