Things are getting murkier by the day in the US for crypto firms, and many are considering moving overseas to crypto-friendlier jurisdictions
In the crypto community, the US has notoriously gained a reputation for having little to no adequate regulatory oversight. Even US Senator Cynthia Lummis (R-WO) has noticed that the US is lagging behind on welcoming blockchain technologies and Web3.
Senator Lummis wants to pass legislation to bring better regulatory clarity to how crypto should operate within America, seeing that the crypto industry will be instrumental in the world’s financial future.
“The failure of the United States Congress to enact policy is pushing the industry to other countries,” said Senator Lummis. “Europe is ahead of us in terms of its regulatory framework. Australia and the U.K. are getting ahead of us. Switzerland is far ahead of us.”
Many US-based industry leaders share the same sentiments as Senator Lummis – Ripple CEO Brad Garlinghouse says that the crypto industry has “already started” to take their business overseas. Coinbase, the largest US-based crypto exchange, is also looking to launch an overseas trading desk due to regulatory uncertainty, despite adhering to strict regulations as much as they can. Not to mention USDC stablecoin issuer Circle is about to open a new office in Paris, as “France is increasingly seen as a leader in crypto,” according to Circle’s chief strategy officer.
Is this the beginning of a mass exodus?
While fears that US crypto companies will move away have been swirling around for a while, will 2023’s events mark the final straw?
Jason Gottlieb, a crypto-focused lawyer and partner at Morrison Cohen says that chances are at “100%. It’s happening. It is absolutely true that people are leaving.” Gottlieb notes that a majority of founders of these crypto firms are 20-somethings, without kids, and are capable of working from anywhere. He continues: “Some of the brightest young entrepreneurs we have are saying, ‘Well, forget it. I’ll go to the Caymans. I’ll go to Portugal. I’ll go to Singapore.’”
And these digital nomad hubs are getting increasingly popular, boasting lower costs of living. Not to mention, COVID-19 escalated a trend of Americans living a lifestyle where they continually work overseas in places like Budapest, Bali, Chiang Mai, Lisbon, and Tbilisi. upon figuring out the concept of remote work.
While staying in the US can give some positive benefits in the eyes of some investors, the final straw, according to David Nage, portfolio manager at Arca, says that recent regulatory and banking troubles have been driving young professionals in crypto to seek a digital nomad lifestyle.
“The ability to operate is becoming less and less profitable for many startups in the United States,” says Nage. According to Nage, founders are considering Europe, Hong Kong and Latin America as possible alternatives – but “no one has left yet,” adds Nage. “They are exploring their options.”
For now, the threat of crypto leaving the US is mainly just talk – but huge, loud talk. As young crypto professionals have the option to just up and leave to set up shop in destinations that many dream of just going on vacation for, there’s other logistical factors that have to be considered before making the big move.
Paul Kuveke, the chief operating officer of Mintbase, a US-based NFT platform, says that the topic of crypto firms choosing to stay or leave the US is a frequent conversation topic, and they are closely watching the phenomenon. According to Kuveke, the US has enough legal ambiguity to keep things constantly confusing – which wouldn’t be a problem in other jurisdictions.
“We live in a lot of gray areas. We want answers,” says Kuveke. “Every conversation to do anything involves a consultation with lawyers. It’s expensive.” Kuveke also notes the confusion regarding crypto tokens, and expressed frustration on how the US Securities and Exchange Commission (SEC) would not provide clear answers (are they a security?). “If you’re going to do a token sale of any kind, the consensus is to not launch in the United States. Go somewhere else,” says Kuveke.
Meanwhile, last month’s events alone have been making it scarier for US-based crypto firms. In what some are calling “Operation Choke Point 2.0” – referencing an Obama-era program to deny financial services to legal, but politically undesirable activities – the American crypto industry has gone through waves of being refused service from banking services.To add fuel to the fire, the SEC is going hard on enforcement action, including going against Coinbase on accusations of skirting securities laws, but hasn’t yet specified specifics.
1/ Today Coinbase received a Wells notice from the SEC focused on staking and asset listings. A Wells notice typically precedes an enforcement action.
— Brian Armstrong (@brian_armstrong) March 22, 2023
US crypto firms moving can be a real threat – to the US
As most Web3 developers are compensated in tokens, it’s not surprising for an overseas move to sound appealing for entire crypto projects based in the US. As there’s the looming threat of the SEC possibly picking any random token or firm to prey on to press charges of securities violations, Web3 development within the US is slowing down in parallel.
Kristin Smith, CEO of the Blockchain Association, has noticed this phenomenon – citing a report from VC firm Electric Capital titled “U.S. Share of Web3 Developers Is Shrinking.” The report also includes a crucial point: as Web3 development continues and grows globally, and more outside the US, the US’s position as a leader in finance and technology becomes threatened.
If crypto leaves the US, it would impact way more than just the crypto industry. Economic impacts, as Nage estimates, may cost a huge amount – $3 billion of crypto wages in the US can bring over $750 million in taxes. Of course, many jurisdictions would happily welcome additional tax revenue to that amount.
Most importantly, if crypto leaves the US, US national security itself may also be threatened. According to Smith, Web3 growth is crucial to American national security, as “the next generation of the internet is going to be built on top of crypto networks,” and “we want to make sure the US is leading that.”
As many US-based crypto players are joking with comments like “Welp, time to move to Dubai!” Amongst the truth and jest, crypto-friendlier jurisdictions like Dubai have already welcomed the industry with open arms.
Nexo, a crypto lending platform, left the US to set up shop in Dubai. As they couldn’t continue business sustainably, their decision to move made them gain back the market share that it lost in the US, with growth in the Middle East, North Africa and Southeast Asia. Antoni Trenchev, Nexo co-founder and managing partner describes Dubai as a place with clearer, crypto-friendly regulations, and more. “You have a lot of expats moving here,” says Trenchev, adding that 800 crypto companies are “setting up shop” in the United Arab Emirates, which “creates an ecosystem of professionals and people you can hire.”
Not to mention, businesses benefit from Dubai’s “Zero Problem policy”, which gives entrepreneurs like Trenchev clear regulations, excellent internet connection, crypto-friendly banks, and better convenience and quality of everyday essentials – luxuries that crypto companies in the US may not even get.
Some however, still want to stay. As 20% of the worldwide crypto market remains in the US, other market opportunities still remain, and the US still has an air of legitimacy due to the status it has built over time as a superpower. Not to mention, many companies just can’t be bothered to dip out after complying to and filling out mountains of paperwork that require them to legally operate.
Who’ll take the lead?
If the US were to overnight pass clear regulations on crypto, it’s obvious that international standards would follow.
As Europe and the US hold the status of gold standards for regulations across the globe, there may be a chance that business in the US may be appealing again.
While it’s unclear when the US will take appropriate action to address issues that may result in the loss of billions of dollars to the national economy, it’s only a race against time. As Kuveke puts it, “most startups and small businesses don’t have the luxury of thinking on a 5-year or 10-year time horizon,” and are not confident about continuing business in the States for the time being.
Not to mention, American-born consumers tend to want to do business with American-born companies. Preston Byrne, the tech and crypto-focused partner at law firm Brown Rudnick, says that his clients want to comply with American law, and are willing to stick with compliance, “even if it’s going to slow them down in the beginning.”
But if US regulators are going to continue their pace on limiting the crypto industry from flourishing due to unclear regulations, there’s going to be a slowing of new crypto products and services from the US, and the US may lose its position in the fintech revolution to the rest of the world.