Exchange Wants to Know Where the Money Came From? Here's How to Stay Away from This KYC Nightmare

October 31, 2025, 8:44 pm

They put $85,000 on hold and want proof that I bought Bitcoin from LocalBitcoins in 2017 (which died in 2023). If your exchange is asking for "Source of Funds" documents, you've found the new favorite tool of compliance departments. This is what makes it happen and how to get away from it.

The Source of Funds Epidemic: Why Now?

2025 was the year exchanges went crazy with SOF requests. This is why:

• FATF Travel Rule: New rules around the world say that you need proof for everything
• Pressure from banks: Banks say they will stop exchanges if they don't follow strict KYC rules
• Government crackdowns: The IRS and EU tax authorities want to see transaction histories
• Profit motive: Exchanges earn interest on frozen funds
• AI compliance systems: Algorithms automatically flag accounts

The truth is: It's not about stopping crime. They want to protect themselves and make money from your frozen funds.

What Makes Source of Funds Requests Happen

What They Look For

• Big deposits and withdrawals: Most of the time it's more than $10,000, but it can be as low as $3,000
• Old crypto moving all of a sudden: Coins from 2017 to 2020 cause instant reviews
• Quick growth of accounts: $1,000 to $50,000 in a month is a red flag
• Several small deposits: Looks like "structuring" to get around limits
• Crypto from "suspicious" sources: Tornado Cash, mixers, and coins that protect your privacy
• Changes in geography: Log in from a new country or VPN
• Taking profits: Cashing out gains makes wealth checks happen

The Impossible Documents They Want

This is what they really want (I swear I'm not making this up):

Level 1: Basic Harassment

• Statements from the bank for the last six months
• Proof of employment and pay stubs
• Tax returns for the last two to three years
• Bills for utilities

Level 2: Getting Ridiculous

• Original receipts for buying crypto (from 2017?!)
• Full transaction history from all exchanges that have ever been used
• Documentation of mining pool payouts
• ICO participation proof
• Letters of gift if crypto was given as a gift

Level 3: Completely Insane

• Wealth declaration with a notary stamp
• Death certificates as proof of inheritance
• Documents for starting a business
• Contracts with clients if you're self-employed
• Pictures of every wallet you've ever used
• Written description of each transaction that costs more than $1,000

In real life: "Coinbase asked for proof that I bought $500 worth of Bitcoin in 2016. The FBI took over the exchange (BTC-e) in 2017. How can I show this?" - User on Twitter, October 2025

Why You Can't Win the SOF Game

The Problems with Catch-22

1. Exchanges that are no longer active: Mt. Gox, BTC-e, Cryptopia, and QuadrigaCX are all gone
2. LocalBitcoins/P2P: No receipts for cash trades
3. Missing records: Who has the 2017 exchange emails?
4. Coins for privacy: Monero and Zcash were made to be hard to trace
5. DeFi gains: How do you "prove" that Uniswap made money?
6. Airdrops and forks: No purchase, just showed up in wallet
7. Mining: There is no official record of home mining

The game is fixed. They know you can't give them these papers. That's the point.

How to Avoid SOF Requests Completely

Strategy 1: Stay Out of Sight

• Don't take out more than $2,999: Below most SOF triggers
• Space out your transactions: Wait at least 30 days between big moves
• Use more than one exchange: Spread activity across platforms
• Don't use round numbers: Take out $2,847, not $3,000
• Don't trade to fiat: Crypto-to-crypto doesn't often cause SOF

Strategy 2: Clean Up Your Crypto

1. Stop the chain: Old wallet ? New wallet ? Wait ? Trade
2. Use services that are real: Pay for something and get change back
3. Delay in time: Leave coins alone for at least six months before moving them
4. Mix different types of money: Send different amounts, not patterns

Strategy 3: Use Alternatives That Don't Require KYC

Instant Exchangers like Changeum:

• You can't make SOF requests if you don't have an account
• No KYC for any amount
• Direct exchanges between wallets
• They can't freeze what they don't have
• Transactions that take 15 minutes, in and out

Other Choices:

• DEXs: Uniswap, SushiSwap (no KYC ever)
• P2P sites: Bisq, LocalMonero, AgoraDesk
• Coins that protect your privacy: Change to XMR and break the trail
• ATMs for Bitcoin: More money, but no questions

If You're Already Stuck: The SOF Escape Plan

Option 1: The Partial Truth Method

1. Give what you really have
2. If you don't have the right papers, say, "Exchange closed/hacked, records lost"
3. Show ANY crypto activity as "proof of involvement"
4. Give some paperwork and talk about it
5. If they say no, threaten to file complaints with the government

Option 2: The Business Entity Method

1. Make an LLC or company after the fact
2. List crypto as "business assets"
3. Give business bank statements
4. Claim that trading is a source of business income
5. Usually meets SOF requirements

Option 3: The Nuclear Option

If the amount is big enough to make it worth it:

1. Get a lawyer who knows a lot about crypto
2. Report the problem to the financial regulator
3. Campaign for public pressure (Twitter/Reddit)
4. Local news: "Exchange takes away all your money"
5. Usually takes 2 to 3 months to fix

The Template That Works Sometimes

Use this for your SOF answer:

Rate of success: About 40%, which is better than nothing.

Which Exchanges Are the Worst for SOF

The Hall of Shame

1. Coinbase: Triggers on $5,000 or more, impossible requests
2. Kraken: Wants to know everything about your money history
3. Bitstamp: Known for harassing SOF
4. Gemini: Freezes first, then asks questions
5. Binance: Random SOF requests, even for small amounts

Somewhat Better Choices

• KuCoin: Higher limits, less aggressive
• MEXC: Not often asks for SOF
• Gate.io: More lenient with paperwork
• OKX: Reasonable SOF needs

Why This Will Get Worse in the Future

Coming in 2025�2026:

• AI monitoring: Every transaction looked at in real time
• Blockchain forensics: Tracking the full history is required
• Database for the whole world: Exchanges that share SOF information
• Demands that go back in time: Prove transactions that happened ten years ago
• Taxes on wealth: Governments want their share of old profits

The only answer is: Leave the KYC system completely.

The Changeum Advantage

Why Changeum.io users never have to deal with SOF:

• No accounts: You can't ask for documents from users who don't exist
• No records kept: Deleted transaction data after completion
• Peer-to-peer that is real: Direct swaps, no middleman holding the assets
• Privacy by design: No tracking, no names, no emails
• Processing right away: 15 minutes at most, no time for SOF requests

How to Move from KYC Exchange to Changeum

1. Take out smaller amounts (less than SOF limits)
2. First, send it to your personal wallet
3. Wait a few days (break the pattern)
4. Changeum is the best way to trade in the future
5. Don't ever go back to KYC exchanges

The Bottom Line

Financial colonoscopy is what Source of Funds requests are. They hurt, are invasive, and are usually not needed. Exchanges use them to lock up money, earn interest, and protect themselves from the law.

You have three options:

1. Play their game (you'll lose)
2. Fight back (slow and expensive)
3. Leave for options that don't require KYC (good idea)

Don't forget: Every KYC exchange is just one rule away from taking your money with SOF requests. You should leave before they ask, not after.

Are you currently fighting SOF demands? Please tell us about your experience below. Include the name of the exchange, the amount, and the papers they want. Let's work together to expose this scam.