Wave of government enforcement of cryptocurrency companies is beginning to reshape the industry.
Coinbase, the largest crypto exchange in the United States open a company in Bermuda. Gemini, a rival company based in New York, is Search for a license in the United Arab Emirates. And Bittrex, a Seattle exchange, has suspended its US operations.
After years of trying to shape federal regulation in the United States, a growing number of American crypto companies — particularly the exchanges where customers buy and sell digital tokens — are exploring plans to expand their operations overseas. They are expanding into new markets and considering the possibility of leaving the country entirely.
The moves come in response to increasing law enforcement crackdowns that have made the United States one of the toughest cryptocurrency regulators in the world. The Securities and Exchange Commission on Tuesday filed a long-awaited lawsuit against Coinbase, alleging that the exchange markets securities without proper registration. The day before that was SEC sued international crypto exchange Binanceto ban its founder from the US securities market.
Enforcement is a game changer for an industry that seemed to be gaining mainstream acceptance just a year ago. Cryptocurrencies were created with an anti-government ethos as a decentralized financial system that operates out of the reach of regulators. But as the market skyrocketed in 2021, crypto companies in Washington set up a lobbying apparatus and attempted to transform themselves into a compliant company eager to work with the government.
This attempt has largely failed. Last year, a series of crypto meltdowns sparked widespread distrust of the industry. Congress, regulators and the public have become increasingly hostile.
Today, the possibility of leaving the United States is “the main topic that crypto startups are talking and thinking about,” said Nic Carter, founder of Castle Island Ventures, a crypto venture capital firm. “You can move to the Cayman Islands or London or Bermuda or have a significant portion of your leadership there, or Hong Kong or Dubai.”
In theory, a major exodus from the United States could eventually make it harder for Americans to trade digital currencies and experiment with new crypto products. But not all American crypto companies are looking to relocate: Firms specializing in bitcoin mining, an energy-intensive process, are flocking to the US in search of cheap electricity. And even internationally expanding crypto companies plan to fight for more favorable rules in Washington.
Still, tensions between the industry and US regulators have been increasing since early 2021 Gary Genslera staunch crypto critic, was appointed SEC chairman. For two years, the SEC has held that almost all cryptocurrencies should be classified as securities like stocks traded on Wall Street, which would force crypto firms to register with the agency and subject them to strict disclosure requirements.
A new round of hostilities began in November following the collapse of FTX, the crypto exchange founded by Sam Bankman-Fried. In the months that followed, the SEC sued a number of crypto lending firms and cracked down on an investment product marketed by Kraken, a popular US exchange.
At the same time, several leading financial regulators issued statements warning banks about the risks of cryptocurrencies. Industry supporters labeled The government is conducting Operation Choke Point 2.0, alluding to an Obama-era law enforcement campaign to stop banks from collaborating with certain companies.
“Things definitely took a big turn after the collapse of FTX,” said Perianne Boring, head of the Chamber of Digital Commerce, a cryptocurrency advocacy group. “We have made many good faith efforts at the SEC and even at other policymakers who are now the big critics.”
As the largest US crypto company, Coinbase has been at the center of the regulatory debate.
After its inception in 2012, Coinbase gained prominence by marketing itself as the most trusted and compliant crypto exchange. Two years ago it went public, a watershed Moment that seemed to signal the industry’s growing role in US trade.
Since then, Coinbase has repeatedly run afoul of federal regulators. In September 2021, after the SEC blocked the company from offering a popular investment product, the company’s chief executive officer, Brian Armstrong, stated, accused the cause of “really patchy behavior”.
In Washington, Coinbase and other major U.S. crypto companies have rallied against the tightening regulatory regime, lobbying lawmakers to create tailored rules for the digital asset industry. However, as these efforts failed, some crypto firms started looking abroad.
At a conference in London in April, Mr Armstrong said called The United States needed clearer rules for crypto. “If the US doesn’t have that,” he said, “these companies will be formed in offshore ports.”
Coinbase was already starting to move in this direction. In May, the company announced it would open an international exchange based in Bermuda that would allow foreign users to engage in high-risk and rewarding trades that are banned in the United States.
in one opinion Coinbase announced the deal, saying it remains “loyal to the US.” However, it noted that other countries were beginning to “strategically position themselves as crypto hubs.” The company did not respond to a request for comment.
“We’re seeing countries that instead of trying to take legal action, they actually sit down and assess the risk in the market and set new rules,” said Kristin Smith, executive director of the Blockchain Association, a cryptocurrency advocacy group. “We will see how different projects and developers start and initially work abroad.”
Nevertheless, a blanket departure from the United States is unlikely in the foreseeable future. The crypto industry has always had a global reach, with businesses across Europe, Asia and the Caribbean. Coinbase plans to challenge the SEC’s lawsuit, and a win could give the industry new ammunition to push for the legislation it wants.
But as enforcement action mounts, other US crypto firms are taking steps to expand their operations abroad.
Last week, Gemini, the crypto exchange founded by Tyler and Cameron Winklevoss, announced that it is seeking a license to operate in the Emirates. The Notice cited statistics showing that the Emirates had overtaken the United States in adopting cryptocurrencies. A Gemini spokeswoman did not respond to a request for comment.
In March, Bittrex announced it would cease operations in the United States. quote “the current regulatory and economic environment in the US.” A few weeks later, the SEC sued the crypto exchange; has his US arm filed File for bankruptcy while the company’s global exchange continues to operate overseas.
In a statement, Oliver Linch, managing director of Bittrex’s global operations, said it was “no surprise” that crypto companies were looking overseas. “The chaotic regulatory environment in the US only serves to compound the worries of the crypto winter and scandals of 2022,” he said.
For entrepreneurs with relatively small crypto businesses, a move is particularly enticing. “It’s easier for new start-ups,” said Mr. Carter of Castle Island Ventures. “There is definitely an interest in considering other jurisdictions.”
