Why I don’t want to include my crypto startup in the US
Still, I am extremely bearish on the US as a place for builders to launch crypto projects, especially if there is or could be a token associated with their business.
While jurisdictions like Dubai bring regulatory clarity and direct support to developers to set up shop in this crypto oasis, the US remains an outlier in embracing regulation through enforcement. This has been true for years when it comes to the never-ending question of whether and which tokens should be classified as a security or a commodity. Clearly, if US Securities and Exchange Commission Chairman Gary Gensler had his way, everything in crypto would be a security by default, and he would have the power to be judge, jury and executioner.
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Instead of regulatory certainty that creates predictability and the ability for the crypto-ecosystem to move forward knowing that it is operating within the bounds of legality, for too long the US has opted for scare tactics through threats and fines in the absence of well-defined regulation. .
There are many in Congress—including Senator Cynthia Lummis and members of the Congressional Blockchain Caucus, such as Representatives Tom Emmer and Bill Foster—who actually understand the consequences of inaction. They see this lack of regulatory clarity as posing a fundamental risk of the US being completely left behind as crypto-chains become more ubiquitous and adopted by every industry in the world.
Yet Congress’s lack of action has left a regulatory vacuum that Gensler has been able to exploit. In the latest confusion, the SEC has forced Kraken to shut down its U.S. betting operations — which represent 10% of its annual revenue — and pay a $30 million fine because the SEC, or at least Gensler, has apparently decided to again place a heavy hand on a centralized and highly regulated American stock exchange.
As countless industry experts have noted, it’s ironic that companies like Kraken and Coinbase, which have operated legally in the US for years and are in compliance with every law knowingly applied to them, are so often the subject of SEC ire. The result has been that fraudulent companies and actors such as Sam Bankman-Fried and FTX succeed in moving offshore where they are beyond the reach of all US regulators (and the SEC’s regulation by enforcement).
Let me ask you this. If you were a founder considering where to set up your legitimate crypto business and you had the world to choose from, why would you even put the US in the top 10 places to consider?
I can tell you from firsthand experience, as a crypto entrepreneur myself, every single lawyer we have met with has discouraged us from considering the US due to regulatory uncertainty. And of course, when non-US crypto companies decide to participate in token generation, they are always advised to utilize know-your-customer (KYC) processes to avoid selling tokens directly to the US. No one really knows what constitutes a security in the US crypto space. So this creates difficulties for developers everywhere in the world when they distribute tokens but try to avoid the wrath of the SEC, not because the founders aim to be fraudulent or intentionally sell securities to US retail investors, but because no one actually knows what US regulators or to and with the SEC actually considering a security, given the well-documented challenges of applying the Howey test to digital assets on crypto rails.
My own company is in the process of evaluating where to incorporate our token generating entity and yes, Dubai is now very high on our list, along with Singapore, Switzerland, the UK and other jurisdictions that have much clearer regulations for token issuers . Meanwhile, there is no jurisdiction in the US that would make sense for us to consider, despite the fact that I am a US citizen and our project already has ecosystem participants in the US
The US, historically the birthplace of venture capital and global innovation, should get its act together soon and develop regulations using rules that all builders can openly follow. If not, the country, and its innovation ecosystem, is at great risk of losing the best and brightest to emerging crypto hubs around the world that have recognized the need and acted to create regulatory certainty.
