Major players hope the SEC and Washington take seriously what crypto observers see as a hoax and soften the hard line regulators have taken on the industry.
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Cryptocurrency companies are playing a game of poker with the Securities and Exchange Commission, making bold threats to leave the US as the regulator ramps up pressure on the industry to stick.
Major players hope the SEC and Washington take seriously what crypto observers see as a hoax and soften the hard line regulators have taken on the industry.
Executives from companies including cryptocurrency exchange Coinbase and blockchain services company Ripple have joined the comments about the SEC, noting plans to move businesses offshore, in an attempt to rally support and send a message to US politicians concerned that the country could miss out on a key technological innovation.
Coinbase CEO Brian Armstrong said last week that the SEC was on a "lonely crusade" with its tough actions against certain cryptocurrency companies. He added that Chairman Gary Gensler had taken an "anti-crypto view," despite having been a supporter of the industry during his time as an economics professor at MIT's 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 so [Gensler is] necessarily trying to regulate the industry as much as perhaps restrict it. But it's created some lawsuits and I think it's pretty useless to the industry in the US in general."
Brad Garlinghouse, CEO of Ripple, also stormed the SEC this week. When he was asked about his message to Gensler when the company announced an expansion to Dubai, he quipped: "Who?" before saying later that Ripple will have spent $200 million fending off a lawsuit launched by the regulator by the time it is over.
"I find it as a company that started in the United States and as someone who is a US citizen, it's sad. I'm saddened by this. America is being outpaced not just a little but a lot," Garlinghouse said. .
"The difficult thing about this is that you have a country that I think has put politics above politics and that is not a good decision if you are trying to invest in the economy."
Dubai and Europe have proven to be much more favorable markets with their virtual asset regulatory frameworks, Garlinghouse said, adding: "The US is definitely stuck."
Garlinghouse, Armstrong and other crypto bosses have threatened to leave the US, highlighting industry concerns that the SEC crackdown is getting too harsh. The regulator has taken strong enforcement action against companies including Ripple, Coinbase, Kraken and Paxos, accusing each of violating securities laws.
The SEC's argument is that most tokens on the market can qualify as securities, which would subject them to much more stringent registration and disclosure requirements. Crypto companies have naturally denied that the assets they issue or list on their platforms should be treated as securities.
Will they stay or will they go?
The question is: could they really leave? It seems pretty unlikely.
โThe United States is one of the largest markets for cryptocurrencies and therefore it is highly unlikely that they will go away,โ Larisa Yarovaya, an associate professor of finance at the University of Southampton, told CNBC via email.
โThe biggest fear for cryptocurrency companies is that regulation will cause cryptocurrency investors to panic and prices will fall. Showing confidence (even arrogance) is a common tactic of CEOs of cryptocurrency companies. They think this is will translate into investor confidence, overconfidence in some cases, and encourage more irrational behavior among investors, e.g. HODL [hold on for dear life] even when markets are falling.
Ripple's Garlinghouse has been threatening to move its company headquarters overseas since 2020. In October of that year, it said the UK, Switzerland, Singapore, Japan and the United Arab Emirates were under consideration for Ripple's possible move abroad. .
That hasn't happened yet.
Meanwhile, the Coinbase chief suggested at a fintech conference in London in April that the company would consider options to invest more abroad, including relocating from the US elsewhere, if the exchange does not get regulatory clarity in the USA
A month later, Armstrong said that Coinbase "will not be moving overseas."
โWe are always going to have a US presenceโฆ But the US is a little behind at the moment,โ he told CNBC.
The US is a huge market for the industry, with more than 50 million Americans saying they own some crypto, according to a survey conducted by Morning Consult for Coinbase.
"There's a much bigger focus on international markets for those firms. But at the higher end of the market, I personally can't see it happening where you leave the US market entirely," Jonathan Levin, co-founder of Chainalysis, told CNBC. in an interview in London.
"It's more about how much do you invest in a new international expansion where maybe that wasn't quite as high on the agenda, but now let's look at France, let's look at the UK."
On top of this, the practicalities of moving these large companies out of the US would be difficult.
"Although these industries are virtual by nature, they still need people, and people have families, mortgages and preferences about where they live. Replacing them with local talent in the new location may be easier said than done," said George Weston, a partner. of the global offshore law firm Harneys, he told CNBC via email.
Regulatory certainty outside the US
Crypto bosses are taking advantage of concerns from some officials that the US has been mired in regulatory uncertainty, while other jurisdictions, such as the European Union and the UK, have moved forward with proposed regulatory frameworks for digital assets.
SEC Commissioner Hester Peirce told a Financial Times conference last week that the US was "shooting itself in the foot by not having a regulatory regime in the US."
He praised the EU for its progress in passing laws for the crypto industry.
The EU is expected to introduce the first full set of regulations for digital assets, known as Markets in Crypto Assets (MiCA), sometime in 2024.
"It's really commendable that Europe was able to do it so quickly," Peirce said, according to Reuters. "If we build a good regulatory regime, people would come. I think you'll see that with MiCA."
Diego Ballo Ossio, a partner at the Clifford Chance law firm, said other jurisdictions, including the UK and the EU, are changing their legislative frameworks to create clear regulatory regimes for exchanges.
โThis means that other countries are effectively providing US-based exchanges with an option: a place to move to. It is not unthinkable that a US exchange would decide to create operating centers in jurisdictions outside of the US. the US where the product can be safely innovated and improved." he told CNBC.
Binance, the world's largest cryptocurrency exchange, recently said that it has become more difficult for the company to operate in the US and that it intended to set up a regulated operation in the UK.
Patrick Hillman, the company's chief strategy officer, said the United States "has been very mixed up for the last six months," pointing to the SEC's actions against Coinbase as a sign of how the country is in a "strange place."
While the US crypto industry might currently be issuing empty threats right now, there could be a real problem if regulators in the US do not move forward with thoughtful regulation.
"My bottom line is that I think it's more of saber rattling than a genuine desire to get out of the US, but if the SEC continues down the path it's on, many companies will have no choice but to try another way." of doing business. It's existential," Daniel Csefalvay, a partner at the BCLP law firm, told CNBC via email.
