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The major players are hoping that the SEC and Washington, D.C., will take what cryptocurrency watchers see as scams seriously and soften the hard line regulators have taken on the industry.
Roman Strelchenko | 500px Plus | Getty Images
Cryptocurrency firms are playing poker with the Securities and Exchange Commission, making bold threats to leave the US as the regulator ramps up pressure on the industry to get in line.
The major players are hoping that the SEC and Washington, D.C., will take what cryptocurrency watchers see as scams seriously and soften the hard line regulators have taken on the industry.
Executives at companies including cryptocurrency exchange Coinbase and blockchain services company Ripple have piled comments on the Securities and Exchange Commission (SEC) and signaled plans to turn the business offshore, in an effort to drum up support and send a message to US politicians worried the country might miss out on an opportunity. . Major technological innovation.
Coinbase CEO Brian Armstrong said last week that the SEC was on a “lonely crusade” with its crackdown on some crypto companies. He added that President Gary Gensler took an “anti-crypto view,” despite earlier being supportive of the industry during his tenure as an economics professor at the MIT Sloan School of Management.
“The SEC here looks a little weird,” Armstrong told CNBC’s Dan Murphy in an interview in Dubai. “I don’t think he (Gensler) is necessarily trying to regulate the industry as far as it can be curtailed. But he has instituted some lawsuits, which I think are completely unhelpful to the industry in the United States in a big way.”
Ripple CEO Brad Garlinghouse also entered the SEC this week. When asked about his message to Gensler as the company announced its expansion in Dubai, he quipped, “Who?” Before later saying that Ripple will spend $200 million to defend itself against a lawsuit brought by the regulator by the time it ends.
“I find it as a company that started in the US and as an American citizen, it’s sad. I feel sad about it. The US has been bypassed not just a little bit but a lot,” Garlinghouse said.
“The difficult thing about this is you have a country that I think has put politics before politics and that’s not a good decision if you’re trying to invest in the economy.”
Dubai and Europe have proven to be more suitable markets with default regulatory frameworks for assets, Garlinghouse said, adding: “The US is definitely stuck.”
Garlinghouse, Armstrong and other crypto chiefs have all made threats to leave the US, highlighting industry concerns that the SEC’s crackdown is getting too harsh. The regulator has taken strong enforcement action against companies including Ripple, Coinbase, Kraken, and Paxos, accusing each of these companies of breaching securities laws.
The SEC’s argument is that most of the tokens in the market may qualify as securities, which could subject them to stricter requirements around registration and disclosure. Naturally, cryptocurrency companies have refused to treat the assets they issue or list on their platforms as securities.
Will they stay or will they go?
The question is: can they actually leave? It seems highly unlikely.
“The US is one of the largest markets for cryptocurrency, and therefore it is unlikely that they will leave,” Larisa Yarovaya, a 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 cryptocurrency investors and that prices will drop. Appearing confident (even arrogant) is a common tactic of crypto company executives. They believe this will translate into investor confidence, and in some cases overconfidence. It will encourage more irrational behavior among investors, eg HODL (wait for dear life) even when markets are down.”
Ripple’s Garlinghouse has been threatening to move its company headquarters offshore since 2020. In October of that year, he said that the United Kingdom, Switzerland, Singapore, Japan and the United Arab Emirates were under consideration for a possible Ripple move abroad.
This has not happened yet.
Meanwhile, the head of Coinbase suggested at a fintech conference in London in April that the company would consider options to invest abroad, including moving from the US to another location, if the exchange did not obtain regulatory clarity in the US.
A month later, Armstrong said Coinbase would “not go offshore.”
“We will always have an American presence…but the United States is a little behind at the moment,” 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 by Morning Consult for Coinbase.
“There’s a much greater focus on international markets for those companies. But at the higher end of the market, personally I can’t see it ever happening that you leave the US market completely,” Jonathan Levine, co-founder of Chainalysis, told CNBC in an interview at London.
“It’s more about investing in new international expansion where that might not have been high on the agenda, but now let’s look at France, let’s look at the UK.”
Moreover, the practicalities of moving these already large companies out of the United States would be difficult.
“Although these industries are inherently virtual, they still need people, and people have families, mortgages, and preferences about where they live. Replacing them with local talent in a new location may be easier said than done,” George Weston, partner at Global law firm Harneys Offshore, to CNBC via email.
Regulatory certainty outside the US
Crypto chiefs are taking advantage of some officials’ concerns that the US has become shrouded in regulatory uncertainty, while other jurisdictions, such as the European Union and the United Kingdom, have embarked on proposed regulatory frameworks for digital assets.
Hester Pierce, a commissioner with the Securities and Exchange Commission, said at a Financial Times conference last week that the US was “shooting ourselves by not having a regulatory system in the US.”
She praised the European Union for the progress it has made in waving laws on the digital currency industry.
The European Union is expected to bring in its first comprehensive set of regulations for digital assets, known as Markets in Crypto Assets (MiCA), sometime in 2024.
Reuters quoted Pierce as saying, “It is really commendable that Europe is able to accomplish this so quickly.” “If we build a good regulatory system, people will come. I think you’ll see that with MiCA.”
Other jurisdictions including the UK and the EU are working to change their legislative frameworks to create clear regulatory regimes for exchanges, said Diego Palo Osio, partner at law firm Clifford Chance.
“This means that other countries are effectively providing US-based exchanges – a place to go to. It is not unreasonable for a US exchange to decide to establish operational hubs in non-US jurisdictions where product innovation and improvement can be done safely.” he told CNBC.
Binance, the world’s largest cryptocurrency exchange, recently said that it was becoming more difficult for the company to operate in the United States and that it intended to set up a regulated operation in the United Kingdom.
The United States has “been very confusing these past six months,” said Patrick Hillman, the company’s chief strategy officer, citing the SEC’s actions against Coinbase as a sign that the country is in a “weird place.”
While the cryptocurrency industry in the US may be getting rid of empty bungles for now, there could be a real problem if regulators in America don’t move forward with thoughtful regulation.
“My conclusion is that I think it’s a lot louder than genuinely wanting to leave and leave the United States, but if the SEC continues to go the way it’s going, many companies will have no choice but to try another way of doing business,” Daniel said. “It’s an existential thing,” Sicifalfai, partner at law firm BCLP, told CNBC by email.
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