February 21, 2024

Major players want the SEC and Washington to take seriously what cryptocurrency watchers see as bluff and soften the hard line the regulator has taken on the industry.

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Cryptocurrency firms are playing a game of poker with the SEC, boldly threatening to leave the country as the regulator ramps up pressure on the industry to comply.

Major players want the SEC and Washington to take seriously what cryptocurrency watchers see as bluff and soften the hard line the regulator has taken on the industry.

Executives at companies including cryptocurrency exchange Coinbase and blockchain services firm Ripple have rushed to the SEC for comments and said they planned to move operations overseas in a bid to rally support and send a message to U.S. politicians who fear the country might miss out. Information is a key technological innovation.

Coinbase CEO Brian Armstrong said last week that the U.S. Securities and Exchange Commission is taking tough action against certain crypto companies, which is a “lonely crusade.” He added that chairman Gary Gensler holds “anti-cryptocurrency views,” despite being a supporter of the industry during his tenure as an economics professor at MIT’s Sloan School of Management.

“The SEC is a bit of an anomaly here,” Armstrong said in an interview with CNBC’s Dan Murphy in Dubai. “I don’t think (Gensler) necessarily wants to regulate the industry as much as possible. But he’s filed some lawsuits that I think are very unhelpful for the industry in the United States.”

Ripple CEO Brad Garlinghouse also lashed out at the SEC this week. Asked about the message to Gensler when the company announced its expansion to Dubai, he quipped, “Who?” before later saying Ripple would spend $200 million to defend itself at the end of the lawsuit brought by regulators.

“As a company that started in America, as a citizen of the United States, I find this sad. I feel bad about it. America has been overtaken not just a little, but a lot,” Garlinghouse said.

“The difficulty with this is that I think you have a country that puts politics over policy, and if you’re trying to invest in the economy, that’s not a good decision.”

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The regulatory frameworks for virtual assets in Dubai and Europe have proven to be more favorable markets, Garlinghouse said, adding: “The U.S. is definitely in trouble.”

Garlinghouse, Armstrong and other cryptocurrency bosses have threatened to leave the United States, underscoring industry concerns that the SEC is cracking down too hard. Regulators have taken strong enforcement action against companies including Ripple, Coinbase, Kraken and Paxos, alleging violations of securities laws.

The SEC’s argument is that most tokens on the market may qualify as securities, which would subject them to stricter registration and disclosure requirements. Naturally, crypto companies deny that the assets they issue or list on their platforms should be considered securities.

Will they stay or will they leave?

The question is: can they really leave? It seems unlikely.

“The U.S. is one of the largest cryptocurrency markets, so the chances of them leaving are slim,” Larissa Yarovaya, an associate professor of finance at the University of Southampton, told CNBC via email.

“The biggest fear of crypto companies is that regulation will cause panic among crypto investors and prices will drop. Looking confident (even arrogant) is a common tactic of crypto CEOs. They think this will translate into investor confidence, and overconfidence in some situation, and would encourage investors to take further irrational behavior, such as HODLing (hold on) even when the market falls.”

Since 2020, Ripple’s Garlinghouse has been threatening to move his company’s headquarters overseas. In October of that year, he said Britain, Switzerland, Singapore, Japan and the United Arab Emirates were considering moving Ripple overseas.

That hasn’t happened yet.

Meanwhile, Coinbase’s chief executive suggested at a London fintech conference in April that the company would consider options for increasing overseas investments, including relocating from the U.S., if the exchange’s regulation in the U.S. is unclear.

A month later, Armstrong said Coinbase “wouldn’t be relocating overseas.”

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“We’ll always have an American presence … but the United States is a little bit behind right now,” he told CNBC.

The United States is a huge market for the industry, with more than 50 million Americans saying they own some cryptocurrency, according to a survey conducted by Morning Consult for Coinbase.

“These companies are more focused on the international market. But at the high end, personally, I don’t see a move away from the U.S. market completely,” Jonathan Levin, co-founder of Chainalysis, told CNBC in London.

“It’s more about how much you invest in new international expansion, which may not be at the top of the agenda, but now let’s look at France, let’s look at the UK”

On top of that, the reality of moving these already large companies out of the US is going to be tough.

“While these industries are virtual in nature, they still need people, and people have families, mortgages and preferences for where to live. Replacing them with local talent in new places may be easier said than done,” George Weston said. A partner at global offshore law firm Harneys told CNBC via email.

Regulatory Certainty Outside the U.S.

Crypto bosses have expressed concern that some officials worry that the United States has been clouded by regulatory uncertainty, while other jurisdictions such as the European Union and the United Kingdom have proposed regulatory frameworks for digital assets.

SEC Commissioner Hester Pierce told a Financial Times conference last week that the U.S. “has no regulatory regime that shoots itself in the foot.”

She praised the EU’s progress in passing laws for the crypto industry.

The European Union is expected to introduce its first comprehensive set of digital asset regulations, known as the Marketplace in Cryptoassets (MiCA), sometime in 2024.

“It’s really commendable that Europe has been able to get this done so quickly,” Pierce said, according to Reuters. “If we build a good regulatory regime, people will come. I think you’ll see that with MiCA. “

Diego Ballo Ossio, a partner at law firm Clifford Chance, said other jurisdictions, including the U.K. and the European Union, are changing their legislative frameworks to create a clear regulatory regime for exchanges.

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“This means that other countries are effectively offering U.S. exchanges an option — a place to relocate. It’s not inconceivable that U.S. exchanges decide to establish operations centers in non-U.S. jurisdictions where products can be safely innovated and enhanced,” he told CNBC.

Binance, the world’s largest cryptocurrency exchange, recently said it has made it more difficult to do business in the U.S. and is interested in establishing a regulated presence in the U.K.

The company’s chief strategy officer, Patrick Hillman, said the U.S. “has been very chaotic for the past six months,” noting that the SEC’s action against Coinbase showed the country was in a “weird place.” .

While the U.S. crypto industry may be throwing out empty threats right now, real problems could arise if U.S. regulators don’t move forward with thoughtful regulation.

“My conclusion is that I think it’s more arbitrary than a genuine desire to leave the US, but if the SEC continues down the path it’s gone, many companies will have no choice but to try another way of doing business .It’s existential,” Daniel Csefalvay, a partner at BCLP law firm, told CNBC via email.