The wave of government enforcement against cryptocurrency companies has begun to reshape the industry.
Coinbase, the largest crypto exchange in the United States Revealed A business in Bermuda. Gemini, a rival firm based in New York seeking license in United Arab Emirates. And Bittrex, an exchange in Seattle, has shut down its US operations.
After years of trying to shape federal regulation in the United States, a growing number of American crypto companies — especially exchanges where customers buy and sell digital tokens — are exploring plans to build their businesses overseas. They are expanding into new markets and are weighing the possibility of leaving the country altogether.
The move is a response to increasing law enforcement action that has made the United States one of the strictest regulators of crypto in the world. On Tuesday, the Securities and Exchange Commission filed A long-awaited lawsuit against Coinbase, arguing that the exchange was marketing securities without proper registration. the day before SEC sues international crypto exchange Binanceis seeking to ban its founder from the US securities market.
The enforcement marks a turning point for an industry that only a year ago was gaining mainstream acceptance. Cryptocurrencies were created with an anti-government ethos, as a decentralized finance system that would operate beyond the reach of regulators. But as the market boomed in 2021, crypto companies set up a lobbying apparatus in Washington and sought to reposition themselves as a compliant business willing to work with the government.
That effort has largely failed. Last year, a series of crypto meltdowns raised widespread skepticism of the industry. Congress has become the regulator and the public fast Opponent.
These days, the prospect of leaving the United States is “the No. 1 thing crypto start-ups are talking about and thinking about,” said Nick Carter, founder of crypto venture capital firm Castle Island Ventures. “You could go to the Caymans or London or Bermuda, or you could have a significant group of executives there, or Hong Kong or Dubai.”
In theory, a mass 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 US crypto companies are seeking to relocate: Firms that specialize in bitcoin mining, an energy-intensive process, have flocked to the United States in search of cheap electricity. And even crypto companies that are expanding internationally plan to fight for more favorable regulations in Washington.
Nevertheless, tensions between the industry and US regulators have been rising since early 2021, when Gary GenslerA staunch crypto critic, was appointed SEC chairman for two years, the SEC has argued that nearly all cryptocurrencies should be classified as securities, like stocks traded on Wall Street, which crypto firms Will compel them to register with the agency and subdue them. Strict disclosure requirements.
A new round of hostilities began in November following the collapse of crypto exchange FTX, founded by Sam Bankman-Fried. In the following months, SEC sued on A series of crypto lending firms and an investment product marketed by Kraken, a popular US exchange, cracked down.
At the same time, several top financial regulators issued statements warning banks about the risks of crypto. supporter of industry label The government takes on Operation Choke Point 2.0, nodding to an Obama-era law enforcement campaign to prevent banks from working with certain businesses.
“Things definitely took a big turn after the collapse of FTX,” said Perian Boring, who runs the crypto advocacy group Chamber of Digital Commerce. “We had a lot of good faith efforts going on with the SEC and even other policy makers who are now big critics.”
As the largest US crypto company, Coinbase has been at the center of regulatory debate.
Since its inception in 2012, Coinbase rose to prominence by marketing itself as the most trusted and compliant crypto exchange. two years ago, it went public, a watershed moment that signaled the growing role of industry in American commerce.
Since then, Coinbase has repeatedly clashed with federal regulators. In September 2021, after the SEC barred the firm from offering a popular investment product, the company’s chief executive, Brian Armstrong, accused Agency of “really sketchy behavior”.
In Washington, Coinbase and other major US crypto companies have fought back against the intense regulatory regime, lobbying legislators to enact rules for the digital asset industry. But as those efforts failed, some crypto firms began looking overseas.
Mr Armstrong at a conference in London in April Said The United States needed clear regulations governing crypto. “If America doesn’t have it,” he said, “these companies are going to be built in offshore shelters.”
Coinbase was already starting to move in that direction. In May, the company said it was opening an international exchange based in Bermuda that would allow foreign users to conduct a type of high-risk, high-reward trading that is prohibited in the United States.
one in statement Announcing the business, Coinbase said it was “committed to the US” but noted that other countries were starting to “strategically position themselves as crypto hubs”. The company did not respond to a request for comment.
“We see that instead of trying to litigate, countries have really sat down, assessed the risks in the market, and established new regulations,” said Kristin Smith, chief executive of the Blockchain Association, a crypto advocacy group. “We are going to see various projects and developers initially launching and operating overseas.”
Still, a wholesale abandonment of the United States is not likely to happen anytime soon. The crypto industry has always had a global reach, with companies spread across Europe, Asia and the Caribbean. Coinbase plans to challenge the SEC’s lawsuit, and a victory could give the industry new ammunition to push for the legislation it wants.
But as enforcement actions increase, other US crypto companies are taking steps to expand their businesses overseas.
Last week, crypto exchange Gemini, founded by Tyler and Cameron Winklevoss, said it was seeking a license to operate in the Emirates. Announcement Citing statistics showing that the Emirates had overtaken the United States in crypto adoption. A Gemini spokesperson did not respond to a request for comment.
In March, Bittrex announced that it would be ceasing operations in the United States, with citing a reference “The Current US Regulatory and Economic Environment.” A few weeks later, the SEC sued on crypto exchange; it has a US branch filed filed for bankruptcy, while the company’s global exchange continued to operate overseas.
Oliver Lynch, chief executive of Bittrex’s global operations, said in a statement that it was “no surprise” that crypto companies were looking overseas. “The chaotic regulatory environment in the US is only helping to fuel the crypto winter and scam crunch of 2022,” he said.
For business founders with relatively small crypto companies, the move is particularly attractive. “For new start-ups, it’s easy,” said Mr. Carter of Castle Island Ventures. “There’s definitely an appetite to consider other jurisdictions.”