Is it true? Exchanges are reporting to the government once a person transact a huge amount? I thought KYC will only be used to make sure that the account is genuine and not fake or bot. And with KYC you are unlocking the amount that you can withdraw in a day like some exchange.
Yes, since the PATRIOT Act KYC has been required for accessing any financial service over $10,000 (as well as certain services under that amount) in the US, and basically all other countries have followed suit (and since the law is vague, companies sometimes try to collect as much as possible, to be safe). This ensures that money is not being laundered, countries sanctioned by the US don't have access to finance, and that tax is paid whenever necessary.
All transactions over $10,000 also have to be alerted to the IRS and FBI. It's a brilliant example of governmental overreach, along with the rest of the PATRIOT act.