US crypto firms looking for greener pastures in the UK, EU, UAE, Switzerland, or offshore.
The situation is dire for crypto firms in the US.
The SEC is not getting any more cooperative, and the regulatory attacks continue to affect all crypto firms based in the US or targeting US clients.
Some resistance is being organized, like Coinbase’s new Crypto435 initiative – a “grassroot campaign” advocating pro-crypto policy in all of the 435 congressional districts of the states. The industry has also ramped up its lobbying efforts, with a record $21.6 million spent in 2022.
However, these efforts bear little fruit so far, and not only because the official banking lobby officially spends 3 times more (and this is without counting Janet Yellen’s million-dollar paid “speeches”). Crypto is just not woven into the political structure of the US, and its grassroot adoption, while relatively high (14-22% according to different sources), is not enough to make it a nationwide cause.
Since our recent newsletter enumerating the attacks the US crypto industry has taken in 2023, SEC’s Gary Gensler has testified in the House, without showing even the slightest intention to finally give the crypto industry the guidelines it so desperately needs.
On the contrary, when last month a long-standing exchange Bittrex, operating since 2014, expressed its intention to wind down its US operation citing the “current U.S. regulatory and economic environment”, it got instantly hit with an SEC lawsuit, actually proving the exchange’s point.
The cause? “Operating as an unregistered broker” and “an unregistered clearing agency”.
It comes as no surprise that many US crypto firms are now seriously preparing for their Plan B – moving overseas in search of stability and favorable legal conditions.
Nexo, Coinhouse, Ripple, Circle and just some of the big crypto companies that are either actively considering, or already in the process of relocation (or diversification).
Several jurisdictions have emerged as attractive alternatives, including the UK, the EU, the UAE, Switzerland, and of course famous offshore locations.
While the UK does not yet have a clear crypto legal framework, the government has repeatedly expressed its aspirations to become the next crypto hub.
The Financial Services and Markets Bill, which would recognize crypto assets as regulated products, is still making its way through Parliament, but the Financial Conduct Authority (FCA), the UK’s financial regulatory body, has taken proactive steps to provide a clear framework for crypto activities.
Coinbase, one of the biggest US crypto firms, has already shown interest in the UK. During the recent London Fintech Week, CEO Brian Armstrong mentioned the possibility of relocation and emphasized the advantage of having a single authority like the FCA responsible for both commodities and securities. This stands in contrast to the US system, where conflicting statements from the CFTC and the SEC create confusion for businesses.
In 2020, Coinbase obtained an e-money license from the FCA, enabling it to offer fiat payment services to UK customers. This move highlighted Coinbase’s confidence in the UK’s regulatory framework and its commitment to operating within established guidelines.
European Union is renowned for its stringent regulations, but it appears that stringent rules for crypto are better than no rules at all. The much-discussed MiCA legislation (short for Markets in Crypto Assets) was voted by the EU Parliament in April, specifying different types of cryptoassets, including utility tokens, stablecoins, and security tokens. Unlike Gary Gensler, who still cannot make up his mind whether Ethereum is a security, the MiCA law clearly defines it as a cryptoasset.
The framework introduces special requirements for cryptoasset service providers, such as mandatory authorization (for stablecoin issuers), capital requirements, custody policy, and other investor protection measures. This is, of course, heavily bureaucratic, but nothing truly impossible, which is a good sign for the future of crypto industry development in the EU.
This development was duly noticed by the stablecoin issuer Circle, which now opens a Paris headquarter, following Binance’s move last year.
Here’s the main MiCA notions, as outlined by Patrick Hansen, Circle’s EU policy director:
Together with MiCA, an AML regulation called TFR (Regulation on Transfer of Funds) was adopted. It is more controversial, as it extends the obligation of payment service providers to accompany transfers of funds with information on the payer and payee to crypto assets for any transfer exceeding €1,000, even from self-hosted wallets. This measure is often judged as excessive, and the UK Treasury has famously renounced to introduce a similar provision itself.
The United Arab Emirates, and particularly Dubai, is also ambitioning to become a global crypto and blockchain hub. Earlier this year, Dubai adopted a new licensing regime for cryptoasset issuers and service providers, enforced by a specially created Virtual Asset Regulatory Authority (VARA). VARA’s framework includes compulsory rulebooks for service providers and activity-based rulebooks that specify requirements based on the type of service offered.
Dubai license does not come cheap though: an equivalent of $27,200 for application and $54,400 for an annual supervision fee for an exchange service, and more for each additional service, such as custody or lending.
These costs are negligible for big companies like Nexo, one of the biggest CeFi lenders, which is ceasing its US operations and moving to Dubai in search of clear regulations. For the firm’s CEO Antoni Trenchev, Dubai, with its active business ecosystem, is also a great place to hire professionals and the banks are happy to service crypto-related firms.
Other Emirates are following suit: Abu Dhabi is implementing a similar regulation, and in April, the federal UAE securities regulator announced that crypto service providers across all emirates will be able to get a license with the country’s Securities and Commodities Authority.
Switzerland categorizes cryptocurrencies as an asset class rather than a security, treating matters involving the ownership and transfer of virtual currencies in line with other asset classes like property or gold. Hence no special legislation was needed to weave crypto into the existing legal framework, and the lion’s share of the biggest crypto companies have their offices or foundations in Zug, Zurich, Geneva, and other Swiss cities. The country also has a number of crypto-friendly banks, some of which actively engage in crypto activities themselves.
The country’s financial regulatory authority, the Swiss Financial Market Supervisory Authority (FINMA), governs all matters regarding crypto, and gives 4 different types of licenses to crypto asset providers, depending on their activity: fintech, exchange, investment fund or banking license.
The comprehensive legal framework was one of the reasons the biggest crypto projects are registered in Switzerland: Ethereum, Solana, Near, Cosmos… and many others.
What works for traditional finance, also works for crypto. Offshore destinations like the Bahamas (the HQ of the defunct FTX), Panama (Deribit exchange), or Bermuda – the home of the newly created Coinbase International Exchange (so far only open to institutional clients) are some of the possible solutions for the US crypto business fleeing its country.
Other destinations, like Liechtenstein (HQ of Bittrex Global) or Singapore (Huobi, VeChain…), are also welcoming disenchanted US firms.
However, despite all current hardships, many companies realize that relocation is an extreme and expensive move, not to mention that refusing the US market means losing a lot of money. Most of them are still holding tight, hoping that the lobbying efforts and grassroots campaigns will one day force American government agencies to change their attitude toward crypto.