Cryptocurrency firms are engaging in a high-stakes game with the Securities and Exchange Commission, as they issue strong warnings about potentially relocating outside the United States in response to increased regulatory scrutiny on the industry.
Prominent participants in the cryptocurrency industry are expressing their desire for the Securities and Exchange Commission and the U.S. government to take their statements seriously, despite being perceived as empty threats by cryptocurrency observers. These industry players hope that the regulators will reconsider their strict stance and adopt a more lenient approach towards the cryptocurrency sector.
Top executives from companies like Coinbase, a cryptocurrency exchange, and Ripple, a blockchain services company, have joined in criticizing the SEC and indicating intentions to move their business operations abroad. Their aim is to garner support and convey a message to U.S. policymakers who are worried about the potential loss of a significant technological innovation if the country fails to embrace the cryptocurrency industry.
In recent remarks, Brian Armstrong, the CEO of Coinbase, expressed his belief that the SEC's stringent enforcement actions against specific cryptocurrency companies reflected a solitary mission. Armstrong further noted that SEC Chair Gary Gensler had adopted an “anti-crypto view,” despite having previously shown support for the industry during his tenure as an economics professor at the MIT Sloan School of Management.
“The SEC is a bit of an outlier here,” Armstrong told CNBC’s Dan Murphy in an interview in Dubai. “I don’t think [Gensler is] necessarily trying to regulate the industry as much as maybe curtail it. But he’s created some lawsuits, and I think it’s quite unhelpful for the industry in the U.S. writ large.”
“I find it as a company that started in the United States and as somebody who is a U.S. citizen, it’s sad. I have sadness about this. The U.S. is getting passed not just by a little bit but by a lot,” Garlinghouse said.
“The tough thing about this is you have a country that I think has put politics ahead of policy and that’s not a good decision if you’re trying to invest in the economy.”
Garlinghouse, Armstrong, and other cryptocurrency leaders have issued warnings about potentially relocating their operations outside the United States, raising concerns within the industry that the SEC's regulatory crackdown is becoming excessively severe. The regulatory authority has taken robust enforcement measures against companies like Ripple, Coinbase, Kraken, and Paxos, accusing each of violating securities laws.
The SEC argues that the majority of tokens in the market could potentially be classified as securities, subjecting them to more rigorous registration and disclosure obligations. In contrast, cryptocurrency firms have consistently refuted the notion that the assets they issue or list on their platforms should be considered securities.
The decision to stay or go hangs in the balance
“The U.S. is one of the largest markets for crypto, and hence it is highly unlikely that they will leave,” Larisa Yarovaya, associate professor of finance at Southampton University, told CNBC via email.
“The biggest fear of crypto companies is that regulation will cause panic among crypto investors and prices will go down. To look confident (even arrogant) is a common tactic of crypto company CEOs. They think this will translate into investors’ confidence, overconfidence in some cases, and will encourage further irrational behaviour among investors, e.g. HODL [hold on for dear life] even when markets are falling.”
Since 2020, Ripple's CEO, Brad Garlinghouse, has repeatedly made statements about the possibility of relocating the company's headquarters overseas. In October of that year, he mentioned countries such as the U.K., Switzerland, Singapore, Japan, and the United Arab Emirates as potential destinations for Ripple's potential move. However, as of now, no such relocation has taken place.
During a fintech conference in London in April, the CEO of Coinbase hinted that the company would explore the possibility of increasing investments overseas and potentially relocating from the United States to another location if it does not receive clear regulatory guidance within the U.S.
A month later, Armstrong said Coinbase “is not going to relocate overseas.”
“We’re always going to have a U.S. presence … But the U.S. is a little bit behind right now,” he told CNBC.
According to a survey commissioned by Coinbase and conducted by Morning Consult, the United States represents a significant market for the cryptocurrency industry, with more than 50 million Americans indicating that they own some form of cryptocurrency.
“There’s a much greater focus on the international markets for those firms. But at the top end of the market, personally I just can’t see that ever happening that you leave the United States market completely,” Jonathan Levin, co-founder of Chainalysis, told CNBC in an interview in London.
“It’s more about how much do you invest in new international expansion where maybe that wasn’t as high up on the agenda, but now it’s let’s look at France, let’s look at the U.K.”
“Although these industries are virtual by their nature, they still need people, and people have families, mortgages, and preferences on where they live. Replacing them with local talent in the new place may be easier said than done,” George Weston, a partner at global offshore law firm Harneys, told CNBC via email.
Clarity in regulations beyond U.S. borders
Cryptocurrency executives are showcasing the worries expressed by certain officials regarding the prevailing regulatory uncertainty in the United States, contrasting it with the proactive approach taken by other jurisdictions such as the European Union and the United Kingdom, which have made strides in proposing regulatory frameworks for digital assets.
The European Union is anticipated to introduce the initial comprehensive set of regulations for digital assets, referred to as Markets in Crypto Assets (MiCA), in the year 2024.
While the U.S. crypto industry might be signalling towards threats that hold no ground, there could be a real issue if American regulations are not actively taken.
