US Crypto Firms Eye Overseas Move Amid Regulatory Uncertainty
I recently spoke with U.S. Senator Cynthia Lummis (R-Wyom.), also known as the “Crypto Queen,” who wants to pass legislation that would bring regulatory clarity to the cryptocurrency space. She is frustrated that it hasn’t happened yet. “The inability of the US Congress to pass policy is pushing the industry to other countries,” she said. “Europe is ahead of us in terms of regulations. Australia and the UK are ahead of us. Switzerland is way ahead of us.”
Other notables have said something similar. Ripple CEO Brad Garlinghouse told Bloomberg that the crypto industry has “already started” to move outside of the U.S. Coinbase, the largest U.S.-based crypto exchange, is considering launching an overseas trading desk, driven by U.S. regulatory uncertainty. Circle, issuer of the USDC stablecoin, is opening a new office in Paris because, as Circle’s chief strategy officer has said, “France is increasingly seen as a leader in crypto.”
So how serious is this threat? Are US crypto companies really leaving? Or is this just the Web3 boys who cried wolf? (After all, Garlinghouse threatened to move Ripple’s headquarters out of the US in 2020. Ripple is still here.)
“100%. It’s happening. It’s absolutely true that people are leaving,” says Jason Gottlieb, a crypto-focused attorney and partner at Morrison Cohen. Gottlieb says many of these founders are in their 20s, with no kids, and can work from anywhere . “Some of the brightest young entrepreneurs we have are saying, ‘Well, forget it. I’m going to the Caymans. I’m going to Portugal. I’m going to Singapore.’
I have seen some of this. In 2018 and 2019 I lived exclusively abroad, hopping around digital nomad hubs including Lisbon, Budapest, Chaing Mai and Bali. Each place had a busy crypto scene. If you’re young and single and full of wanderlust, why wouldn’t you want to live in a $600-a-month beachfront villa? (As I wrote in 2018, crypto and digital nomads are a natural fit because “nomads, by definition, are decentralized.”) Then the COVID-19 pandemic accelerated this broader trend of Americans working abroad as the rest of the world discovered the concept of remote work.
And now? Recent weeks of regulatory and banking concerns have added “jet fuel” to crypto-seeking overseas, says David Nage, portfolio manager at Arca. “The opportunity to operate is becoming less and less profitable for many startups in the US,” he says, adding that many founders are considering Europe, Hong Kong and Latin America as possible options. “No one has left yet,” says Nage. “They are exploring their options.”
So for now, the threat to leave is mostly talk, not action. But there is a lot of talk. “This comes up all the time,” says Paul Kuveke, CEO of Mintbase, a US-incorporated NFT (non-fungible token) platform. Kuveke says that the decision to stay or leave the US is a frequent topic of conversation and is “something we constantly monitor”. A big reason is the legal ambiguity. – We live in many gray areas. We want answers, says Kuveke. “Every call to do something involves a consultation with lawyers. It’s expensive.” He adds that confusion about crypto-tokens (are they a security?) has scared the founders. “If you’re going to do a token sale of any kind, there’s an agreement not to launch in the US. Go somewhere else,” says Kuveke.
The past month has seen a wave of government-ordered shutdowns of banking services for crypto companies, in what some are calling “Operation Choke Point 2.0” — a reference to an Obama-era program to deny financial services to legal but politically undesirable activities. Meanwhile, the Securities and Exchange Commission has taken enforcement actions against major players, including Coinbase, accusing the platforms of ignoring securities laws.
Anxiety over tokens is one reason why developers may have an incentive to move overseas, says Kristin Smith, CEO of the Blockchain Association. “Many developers are compensated in tokens,” says Smith, such as those who contribute to a decentralized autonomous organization (DAO). Smith cites a report by Electric Capital, a VC firm, titled “US Share of Web3 Developers Is Shrinking.” It says that “global Web3 software development activity has grown more outside the United States, threatening America’s preeminence in finance and technology.”
As my colleague Emily Parker has persuasively argued, crypto leaving the US will affect more than just crypto. Consider the economic impact. “If you have a giant office building filled with tech workers in New York City, all those people are going to eat lunch at sandwich shops across the street,” Gottlieb says. “Now they eat Ban Mian from the streets of Singapore.” Nage estimates that $3 billion in crypto wages in the United States equates to over $750 million in taxes, and “there are definitely going to be countries that welcome that tax revenue.” Smith even considers the growth of Web3 to be important to national security because “the next generation of the Internet is going to be built on top of crypto networks,” and “we want to make sure the United States leads that.”
For Nexo, a crypto-lending platform, leaving the US was not just theoretical. “We had gotten to the point where we kept [U.S.] customers actually created difficulties and costs that did not match the expected revenues, says Antoni Trenchev, Nexo’s co-founder and managing partner. “On the engineering side, certain products could not be offered in the same way [in the U.S.] so we had to rework the platform,” he says, which increased their engineering costs. Ultimately, the situation was “not viable”, so Nexo planned an orderly 18-month withdrawal. (It’s true that Nexo was issued cease-and-desist letters from several states; Trenchev says “it really surprised us” because at the time they were already conducting a gradual withdrawal.)
Trenchev has no regrets. Nexo has replaced the market share it lost in the US with growth in the Middle East, North Africa and South-East Asia, he says. Nexo is setting up its new headquarters in Dubai, which Trenchev describes as having clear and friendly crypto regulations and a welcoming atmosphere. “You have a lot of expats moving here,” says Trenchev, who adds that 800 crypto companies are “setting up shop” in the UAE, which “creates an ecosystem of professionals and people you can hire.” Trenchev was particularly impressed by Dubai’s “Zero Problem Policy” – a philosophy that companies should face zero problems when doing business. For him, the benefits of “zero hassle” include clear rules, top-notch internet, banks that accept crypto customers and “food that only takes 15 minutes to be delivered.”
Others may soon join him. Smith says she often hears joking comments from Blockchain Association members like, “I guess we’re moving to Dubai!” Some of it may be real, and some of it may be a joke. For many, this is similar to when Donald Trump won the presidency in 2016 and many Democrats talked about moving north to Canada.
However, most remained standing. It’s easy to joke about moving to Montreal, but harder to actually do it, as many crypto companies are discovering. “The U.S. generally has the best infrastructure and support for small businesses in general,” says Kuveke, who has found it easier to do banking in the U.S. than in Portugal, where he says the banks are “stunningly terrible.” And moving to another country is “not a random process”, says Kuveke, because it involves a lot of paperwork and approvals and is “many months of work”. As of now, his company, Mintbase, plans to remain in the US.
Marshall Hayner, CEO of Metallicus, a digital asset banking network, also decided to stay in the US. One reason is the simple fact that he likes living in the United States. “I love it here,” says Hayner. But the motives are not only sentimental. “20% of the crypto market is based in the US,” says Hayner, and he has little interest in abandoning that lucrative customer base. He also believes it is important to be in the US for a company to have legitimacy. “If you’re not part of the American market, you just can’t be that big in the tech world, right? You just can’t.”
Then there is the possibility that in the future, if and when the US adopts clear rules, the other international standards will eventually follow suit. “When it comes to regulation and policy around financial services, the gold standard is usually the US and Europe. And then the other countries follow suit, says Hayner. So his logic is that if the U.S. ultimately issues policies that shape the global framework, why ditch the U.S. (and its rich clients) now just to cut some slack?
Kuveke has the same approach. “The United States will always take the lead on this,” he says. “There is no other country in my mind that will come out with regulations that everyone else will adopt.” Kuveke clarifies that this is a long-term analysis – nobody knows when the US will take action – and that others in the space may not share his optimism because “most startups and small businesses don’t have the luxury of thinking about a 5-year or 10-year time horizon.”
This overarching approach—swallow the bitter medicine of US compliance, hope for better in the future—is consistent with what Preston Byrne, the technology and crypto-focused partner at Brown Rudnick, sees from his clients. “Most of my American clients want to comply with American law,” says Byrne. He adds that they are taking a “harder approach to compliance, even if it’s going to slow them down at first.”
All that said, it’s possible that even if companies don’t completely “leave” the U.S., in a more subtle way, the bumpy regulatory environment could leave the nation at a disadvantage. “We’re seeing less growth of new products and services,” says the Blockchain Association’s Smith. She points to Coinbase as an example, saying the company has effectively said, “Maybe we need to focus our derivatives offerings overseas.”
On a more macro level, Byrne says that because of the deep funds of venture capital in Silicon Valley and New York, “the US has sucked all the oxygen out of the room, from a global point of view.” But if the US is about to be “covered by its own regulators”, the oxygen will flow to other parts of the world.
Smith does not see an exodus as inevitable. “We are at this critical moment. We really need to get the government’s tone to change, she says. “We need to spread the fact that this is still a relatively new technology, but there is potential, and we want the United States to lead the innovation.” In the end, she thinks that “all is not lost. We can still turn this around.”
