I recently spoke with U.S. Senator Cynthia Lummis (R-Wyo.), aka “the Crypto Queen,” who wants to pass legislation that will bring regulatory clarity to the cryptocurrency space. She’s frustrated it hasn’t yet happened. “The failure of the United States Congress to enact policy is pushing the industry to other countries,” she said. “Europe is ahead of us in terms of its regulatory framework. Australia and the U.K. are getting ahead of us. Switzerland is far ahead of us.”
Other notables have said something similar. The CEO of Ripple, Brad Garlinghouse, told Bloomberg the crypto industry has “already started” moving 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 U.S. crypto companies really leaving? Or are these just the Web3 boys who cried wolf? (Garlinghouse, after all, threatened to move Ripple’s headquarters from the U.S. in 2020. Ripple is still here.)
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“100%. It’s happening. It is absolutely true that people are leaving,” says Jason Gottlieb, a crypto-focused lawyer and partner at Morrison Cohen. Gottlieb says many of these founders are 20-something, without kids, and are able to work from anywhere. “Some of the brightest young entrepreneurs we have are saying, ‘Well, forget it. I’ll go to the Caymans. I’ll go to Portugal. I’ll go to Singapore.’”
I’ve seen some of this. In 2018 and 2019 I lived exclusively abroad, bouncing around digital nomad hubs including Lisbon, Budapest, Chiang Mai and Bali. Each spot had a bustling crypto scene. If you’re young and single and filled with wanderlust, why wouldn’t you want to live in a beachfront villa that costs $600 per month? (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 overseas as the rest of the world discovered the concept of remote work.
And now? The last few weeks of regulatory and banking concerns have added “jet fuel” to crypto looking overseas, says David Nage, portfolio manager at Arca. “The ability to operate is becoming less and less profitable for many startups in the United States,” he says, adding that many founders are considering Europe, Hong Kong and Latin America as possible alternatives. “No one has left yet,” says Nage. “They are exploring their options.”
So as of now the threat to leave is mostly talk, not action. But there’s a lot of talk. “This comes up constantly,” says Paul Kuveke, the chief operating officer of Mintbase, a non-fungible token (NFT) platform incorporated in the US. Kuveke says the decision of staying or leaving the U.S. is a frequent topic of conversation and is “something we constantly monitor.” One big reason is the legal ambiguity. “We live in a lot of gray areas. We want answers,” says Kuveke. “Every conversation to do anything involves a consultation with lawyers. It’s expensive.” He adds that confusion about crypto tokens (are they a security?) has spooked founders. “If you’re going to do a token sale of any kind, the consensus is to not launch in the United States. Go somewhere else,” says Kuveke.
The last month has seen a spate of government-mandated 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 launched enforcement actions against major players including Coinbase, accusing the platforms of flouting securities laws.
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Anxiety over tokens is one reason developers can have incentive to move overseas, says Kristin Smith, CEO of the Blockchain Association. “A lot of developers are compensated in tokens,” says Smith, such as those who contribute to a decentralized autonomous organization (DAO). Smith cites a report from Electric Capital, a VC firm, titled “U.S. Share of Web3 Developers Is Shrinking.” It says that “global Web3 software development activity has grown more outside the U.S., threatening the U.S.’s preeminence in finance and technology.”
As my colleague Emily Parker has compellingly argued, crypto leaving the U.S. would impact more than just crypto. Think about the economic impact. “If you have a gigantic office building stuffed with tech workers in New York City, all those people are going to eat lunch in sandwich shops across the street,” says Gottlieb. “Now they’re eating Ban Mian from the streets of Singapore.” Nage estimates that $3 billion of crypto wages in the U.S. translates to over $750 million in taxes, and “there are definitely going to be countries that are welcome to 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 U.S. is leading that.”
For Nexo, a crypto lending platform, leaving the U.S. was not just theoretical. “We had gotten to the point where retaining [U.S.] customers actually created difficulties and costs which didn’t match the expected revenue,” says Antoni Trenchev, Nexo’s co-founder and managing partner. “On the engineering side, certain products couldn’t 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 “that really caught us by surprise” because at that point they were already conducting a phased withdrawal.)
Trenchev has no regrets. Nexo has replaced the market share it lost in the U.S. with growth in the Middle East, North Africa and Southeast 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 United Arab Emirates, which “creates an ecosystem of professionals and people you can hire.” Trenchev was particularly impressed by Dubai’s “Zero Problem policy” – a philosophy that businesses should face zero problems when they do business. For him, the perks of “zero problems” have included clear regulations, top-tier internet, banks that welcome crypto clients and “food that only takes 15 minutes to get delivered.”
Others could soon be joining him. Smith says that she frequently hears joking comments from members of the Blockchain Association such as, “I guess we’re moving to Dubai!” Some of that could be real, and some of that could be purely in jest. For many, this is similar to when Donald Trump won the presidency in 2016 and many Democrats talked about moving north to Canada.
Most stayed put, however. It’s easy to joke about moving to Montreal but harder to actually do it, which is something many crypto companies are discovering. “The United States, overall, 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 Portugal, where he says the banks are “mind-bogglingly terrible.” And moving to another country is “not a casual process,” says Kuveke, because it involves a gauntlet of paperwork and approvals and is “many months of work.” As of now his company, Mintbase, plans to remain in the United States.
Marshall Hayner, the CEO of Metallicus, a digital asset banking network, also decided to remain in the U.S. One reason is the simple fact that he enjoys living in the United States. “I love it here,” says Hayner. But the motives are not just sentimental. “20% of the crypto market is based in the U.S.,” says Hayner, and he has little interest in abandoning that lucrative customer base. He also thinks it’s important to be in the U.S. for a company to have legitimacy. “If you’re not part of the U.S. market, you just can’t be that big in the world of technology, right? You just can’t.”
Then there’s the possibility that in the future, if and when the U.S. passes clear regulation, the other international standards will eventually follow suit. “When it comes to regulation and policy around financial services, the gold standard tends to be the U.S. and Europe. And then the other countries follow,” says Hayner. So his logic is that if the U.S. ultimately issues guidelines that shape the global framework, why ditch the U.S. (and its wealthy customers) now just for a bit of corner cutting?
Kuveke has the same approach. “The U.S. will always take the lead on this stuff,” he says. “There’s not another country in my mind that will come out with regulation that everyone else will adopt.” Kuveke clarifies that this is a long-term analysis – no one knows when the U.S. will take action – and that others in the space might not share his optimism because “most startups and small businesses don’t have the luxury of thinking on a 5-year or 10-year time horizon.”
This overall approach – swallow the bitter medicine of U.S. compliance, hope for better in the future – squares with what Preston Byrne, the tech 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 towards compliance, even if it’s going to slow them down in the beginning.”
All that said, it’s possible that even if companies do not completely “leave” the U.S., in a more subtle manner the bumpy regulatory environment could leave the nation worse off. “We see 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 on our derivatives offerings overseas.”
On a more macro level, Byrne says that because of the deep coffers of venture capital in Silicon Valley and New York, “the United States has sucked all of the oxygen out of the room, from a global point of view.” But if the U.S. is about to get “kneecapped by their own regulators,” then that oxygen will flow to other parts of the world.
Smith doesn’t see an exodus as inevitable. “We’re at this critical moment. We really need to get the tone of government to change,” she says. “We need to spread the fact that this is still a relatively nascent technology but there’s potential, and we want the United States to lead the innovation.” Ultimately, she thinks that “all is not lost. We can still turn this around.”
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