EMIRATES CRYPTO EMERALDS : MASTER ESSAY

 

Crypto firms look abroad as America cracks down. Lobbying has largely failed to reverse the U.S. market's increasingly hostile trend. The wave of government enforcement against cryptocurrency companies is beginning to remake the industry.

Coinbase, the largest crypto exchange in the United States, has opened a business in Bermuda. Gemini, a rival firm based in New York, is seeking a license in the United Arab Emirates. And Bittrex, an exchange in Seattle, has shut down its U.S. operations.

After years of trying to shape federal regulations in the United States, a growing number of American crypto companies - particularly the exchanges where customers buy and sell digital tokens - are exploring plans to build their businesses abroad.

They are expanding into new markets and weighing the possibility of leaving the country entirely.

The moves are a response to a growing law enforcement crackdown 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-anticipated lawsuit against Coinbase, arguing that the exchange was marketing securities without the proper registration.

A day earlier, the S.E.C. sued the international crypto exchange Binance, seeking to bar its founder from the U.S. securities market.

The enforcement is a turning point in an industry that seemed to be gaining mainstream acceptance just a year ago. Cryptocurrencies were created with an antigovernment ethos, as a decentralized finance system that would operate beyond the reach of regulators.

But as the market surged in 2021, crypto companies set up a lobbying apparatus in Washington and sought to rebrand themselves as a compliant business eager to work with the government.

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

These days, the possibility of leaving the United States is '' the No. 1 thing that crypto start-ups are talking and thinking about,'' said Nick Carter, a founder of Castle Island Ventures, a crypto venture capital firm.

'' You can move to the Caymans or London or Bermuda, or have a significant faction of your executives there, Hong Kong or Dubai.''

In theory, a large exodus from the United States could eventually make it harder for Americans to trade digital currencies and experiment with new crypto products.

But not all American crypto currencies are seeking to relocate : Forms that specialize in Bitcoin mining, an energy-intensive process, have flocked to the United States in pursuit of cheap power.

And even crypto companies that are expanding internationally plan to fight for more favorable rules in Washington.

Still, tensions between the industry and U.S. regulators have been growing since early 2021, when Gary Gensler, a staunch crypto critic, was appointed chair of the S.E.C.

For two years, the S.E.C. has argued that almost all crypto currencies should be classified as securities, like stocks traded on Wall Street, which would force crypto firms to register with the agency and subject them to strict disclosure requirements.

To sum, for business founders with relatively small crypto companies, a move is especially tempting. '' For new start-ups, it's easier,'' said Mr. Carter of Castle Island Ventures. '' There's definitely an appetite to consider other jurisdictions.''

The Master Essay continues into the future. The World Students Society thanks author David Yaffe-Bellany.