Crypto companies are starting to look abroad as the US bursts

The wave of government enforcement against cryptocurrency companies is starting to reshape the industry.

Coinbase, the largest crypto exchange in the United States, has opened a company in Bermuda. Gemini, a rival company based in New York, is looking for a permit in the United Arab Emirates. And Bittrex, a Seattle-based exchange, has ceased its US operations.

After years of trying to shape federal regulation in the United States, a growing number of US crypto companies – especially the exchanges where customers buy and sell digital tokens – are exploring plans to build their businesses abroad. They are expanding into new markets and considering the possibility of leaving the country completely.

The moves come in response to a growing crackdown by law enforcement that has made the United States one of the strictest regulators of crypto in the world. On Tuesday, the Securities and Exchange Commission filed a long-awaited lawsuit against Coinbase, alleging that the exchange was trading securities without proper registration. A day earlier, the SEC sued the international crypto exchange Binance, in an attempt to keep the founder from the US securities market.

The enforcement is a watershed moment for an industry that seemed to be gaining mainstream acceptance a year ago. Cryptocurrencies were created with an anti-governmental ethos, as a decentralized financial system that would operate beyond the reach of regulators. But as the market soared in 2021, crypto companies set up a lobbying machine in Washington and tried to transform themselves into a compliant company eager to cooperate with the government.

That attempt has largely failed. Last year, a series of crypto meltdowns created widespread mistrust of the industry. Congress, regulators and the public have become increasingly violent.

Today, the opportunity to leave the United States is “the #1 thing crypto startups talk about and think about,” said Nic Carter, a founder of Castle Island Ventures, a crypto venture capital firm. “You can move to the Cayman Islands or London or Bermuda, or have a significant portion of your executives there, or Hong Kong or Dubai.”

In theory, a major exodus from the United States could eventually make it more difficult for Americans to trade digital currencies and experiment with new crypto products. But not all US crypto companies want to move: Companies specializing in Bitcoin mining, an energy-intensive process, have flocked to the United States in search of cheap energy. And even crypto companies expanding internationally plan to fight for more favorable rules in Washington.

Yet tensions between the industry and U.S. regulators have increased since early 2021, when Gary Gensler, an avid crypto critic, was appointed chairman of the SEC. For two years, the SEC has argued that nearly all cryptocurrencies should be classified as securities, such as stocks traded on Wall Street, which would force crypto companies to register with the agency and subject them to strict disclosure requirements.

A new round of hostilities began in November following the collapse of FTX, the crypto exchange founded by Sam Bankman-Fried. In the following months, the SEC sued a series of crypto lenders and cracked down on an investment product marketed by Kraken, a popular US exchange.

At the same time, several leading financial regulators issued statements warning banks about the risks of cryptocurrencies. Industry supporters labeled the government is conducting Operation Choke Point 2.0, referring to an Obama-era law enforcement campaign to prevent banks from cooperating with certain companies.

“Things definitely took a big turn after the collapse of FTX,” said Perianne Boring, who heads the Chamber of Digital Commerce, a cryptocurrency advocacy group. “We had a lot of good faith efforts going on with the SEC and even with other policymakers who are now the big critics.”

As the largest US crypto company, Coinbase has been at the center of the regulatory debate.

After being founded in 2012, Coinbase rose to prominence by marketing itself as the most trusted and compliant crypto exchange. It went public two years ago, a turning point that seemed to signal the industry’s growing role in US trade.

Since then, Coinbase has repeatedly clashed with federal regulators. In September 2021, after the SEC barred the company from offering a popular investment product, the company’s CEO, Brian Armstrong, decided to accused the agency of “really sketchy behavior.”

In Washington, Coinbase and other major US crypto companies have been fighting back against the increasingly strict regulatory regime, lobbying lawmakers to tailor regulations for the digital asset industry. But as those efforts fell apart, some crypto companies have started looking overseas.

At a conference in London in April, Mr. Armstrong said the United States needed clearer rules for crypto. “If the US doesn’t have this,” he said, “these companies will be built in offshore havens.”

Coinbase was already moving in that direction. In May, the company said it was opening an international exchange, based in Bermuda, that would allow foreign users to engage in a type of high-risk, high-reward trading banned in the United States.

In a rack In announcing the company, Coinbase said it remained “committed to the US”. But it noted that other countries were “starting to strategically position themselves as crypto hubs.” The company did not respond to a request for comment.

“We are seeing countries that instead of trying to litigate, have actually sat down, assessed the risk in the market and created new rules,” said Kristin Smith, the CEO of the Blockchain Association, a cryptocurrency advocacy group. “We will see several projects and developers abroad launch and become active.”

Still, the United States is unlikely to be widely abandoned. The crypto industry has always had a global reach, with companies spread across Europe, Asia and the Caribbean. Coinbase plans to challenge the SEC’s lawsuit, and a win could give the industry new ammunition to push for the laws it wants.

But as enforcement action piles up, other US crypto companies are taking steps to expand their operations abroad.

Last week, Gemini, the crypto exchange founded by Tyler and Cameron Winklevoss, said it was seeking a license to operate in the Emirates. The announcement cited statistics showing that the Emirates had surpassed the United States in crypto adoption. A Gemini spokeswoman did not respond to a request for comment.

In March, Bittrex announced that it would cease operations in the United States. quote “the current regulatory and economic environment in the US.” A few weeks later, the SEC sued the crypto exchange; has his American arm archived for bankruptcy, while the company’s global stock exchange continues to operate overseas.

In a statement, Oliver Linch, the CEO of Bittrex’s global operation, said it was “no surprise” that crypto companies were looking overseas. “The chaotic regulation in the US only exacerbates the woes of the crypto winter and the scandals of 2022,” he said.

For business founders with relatively small crypto businesses, a move is particularly tempting. “It’s easier for new start-ups,” says Mr. Carter of Castle Island Ventures. “There is certainly a need to consider other jurisdictions.”