Crypto companies start to look abroad – 09/06/2023 – Market

The wave of legal pressure from the US government against cryptocurrency companies begins to reshape the sector.

Coinbase, the country’s largest cryptocurrency exchange, has opened a company in Bermuda. New York-based rival Gemini is seeking a license in the United Arab Emirates. And Bittrex, a Seattle-based exchange, 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 the “exchanges” (exchanges) where customers buy and sell digital tokens — are exploring plans to open their companies abroad. They are expanding into new markets and considering leaving the country entirely.

The measures are a response to the growing crackdown that has made the United States one of the toughest cryptocurrency regulators in the world. On Tuesday, the Securities and Exchange Commission (SEC) filed a long-awaited lawsuit against Coinbase, arguing that it was trading securities without proper registration. A day earlier, the SEC sued international crypto exchange Binance, seeking to bar its founder from the US securities market.

The crackdown is a turning point for an industry that seemed to be gaining mainstream acceptance just a year ago. Cryptocurrencies were created with an anti-government mindset, a decentralized financial system that would operate beyond the reach of regulatory bodies. But as the market soared in 2021, cryptocurrency companies created a Washington lobbying scheme and sought to re-present themselves as submissive companies, eager to work with the government.

That effort largely failed. In the past year, a series of cryptocurrency meltdowns has created widespread suspicion about the sector. Congress, regulators, and the public became increasingly hostile.

Today, the possibility of leaving the United States is “the #1 thing crypto startups are talking about and thinking about,” said Nic Carter, founder of crypto venture capital firm Castle Island Ventures. “You could move to the Cayman Islands or London or Bermuda, or have a significant faction of your executives there, or in Hong Kong or Dubai.”

In theory, a large exodus from the United States could eventually make it harder for Americans to trade digital currencies and try out new cryptographic products. But not all US cryptocurrency companies are trying to move: Firms specializing in bitcoin mining, an energy-intensive process, have flocked to the US in search of cheap energy. And even cryptocurrency companies that are expanding internationally intend to fight for more favorable rules in Washington.

Still, tensions between the industry and regulators in the US have been building since early 2021, when Gary Gensler, an outspoken critic of cryptocurrencies, was appointed chairman of the SEC. For two years, the SEC has argued that almost all cryptocurrencies should be classified as securities, like stocks traded on Wall Street, which would force these companies to register with the SEC and subject them to strict disclosure requirements.

A new round of hostilities began in November following the collapse of FTX, the cryptocurrency exchange founded by Sam Bankman-Fried. Over the next few months, the SEC sued a number of crypto credit companies and cracked down on an investment product marketed by Kraken, a popular U.S. exchange.

At the same time, several major financial regulators issued statements warning banks about the risks of cryptocurrencies. Industry supporters labeled the government’s actions Operation Choke Point 2.0, alluding to an Obama-era legal campaign to bar banks from working with certain companies.

“Things definitely changed after the FTX collapse,” said Perianne Boring, who runs the Digital Chamber of Commerce, a cryptocurrency advocacy group. “We’ve had a lot of good faith efforts with the SEC and even with other policymakers who are now the big critics.”

As the largest crypto company in the US, Coinbase has been at the center of the regulatory debate.

After its founding in 2012, Coinbase rose to prominence by promoting itself as the most trusted and compliant cryptocurrency exchange. Two years ago, it went public, a turning point that seemed to indicate the industry’s growing role in US commerce.

Since then, Coinbase has had numerous conflicts with federal regulators. In September 2021, after the SEC blocked it from offering a popular investment product, its CEO Brian Armstrong accused the agency of “really imprecise behavior”.

In Washington, Coinbase and other major U.S. crypto companies have fought the tightening regulatory regime, lobbying lawmakers to create specific rules for the digital asset industry. However, these efforts failed and some cryptocurrency firms started looking abroad.

At a conference in London in April, Armstrong said that the United States needs clearer rules to govern cryptocurrencies. “If the US doesn’t do this, these companies will be created in offshore havens,” he said.

Translated by Luiz Roberto M. Gonçalves