Strike, Coinbaseย Cryptoย exchange and others have intimated they may leave theย Unitedย States owingย to regulatory pressure. Onย theย otherย hand, those canย potentially be empty threats.
Andย once he 1st took office as head of the Unitedย States Securities and Exchange Commission (SEC) in 2021, Gary Gensler warned cryptocurrency projects that he would be skeptical of โdecentralization theater.โ Thatโs a category of misleading states sometimes made by DAOs [decentralized autonomous organizations] or protocols to be effectively leaderless (and thisย isย why maybe unprosecutable), when inย reality they have an obvious core leadership team.
Now, the ongoing regulatory crackdown by Gensler and the broader Biden administration seemsย to be triggering a different kind of decentralization: major cryptocurrency corporations leaving the United States.
Thisย post is excerpted fromย The Node, CoinDeskโs daily roundup of the most pivotal stories in blockchainย tech and cryptocurrency news. You can subscribe to get the fullย newsletter here.
Corporations including exchanges Coinbaseย Cryptoย exchange and Gemini, Bitcoinย (BTC) frontend Strike and investment management platform Bakkt have all gestured towards exiting the Unitedย States in recent weeks. Investor Cathie Wood, known for her huge long bets on both Tesla,ย Inc. and Coinbaseย Cryptoย exchange, argued thisย comingย week that the Unitedย States is โlosing the Bitcoinย (BTC) movementโ as cryptocurrency shifts away from the U.S.
This sort of geographical shift really does happen, and can be very bad for over-regulated jurisdictions โ forย example, drugmaker Bayer has recently stated it will shift its business focus away from Europe for regulatory reasons.
Onย theย otherย hand, on deeper examination, some of the signaling by cryptocurrency corporations seems less like a real shift than another kind of decentralization theater. And just like the protocol variety, itย could not do much to sway regulators.
The other kind of leverage
There are two basic ways to view cryptocurrency companiesโ gestures towards leaving the Unitedย States Several couldย be genuinely motivated to do so by regulatory uncertainty or an anticipated crackdown. Onย theย otherย hand, they may likewise be tryingย to exert leverage on Unitedย States regulatoryย authorities by threatening to take jobs and revenue elsewhere.
For now, aย lotย of theย latestย information items painting theย pictureย of a mass cryptocurrency exodus from theย Unitedย States appearย to fall in the Second category: Maybe not pure theatrics, but pretty close.
Several of the headlines are the result of rhetoric getting overplayed by credulous media. A Bakkt executive stated they liked Europeโs MiCA framework, and signaled expansion plans โ but no intent to leave the Unitedย States Geminiโs expansion outside of the Unitedย States has been incorrectly stated as an โexit.โ Similarly, while Coinbaseย Cryptoย exchange is signaling worldwide expansion, thereย is not much to show for it so far โ their international exchange is so far a very limited offering.
Several gestures seem more substantive, but have unclear real consequences. At the Bitcoinย (BTC) 2023 conference in Miami pastย week, Strike CEO Jack Mallers gave an impassioned denouncement of Unitedย States regulatoryย authorities, then announced that Strike would be โheadquarteredโ in El Salvador. Onย theย otherย hand, Strike has clarified to CoinDesk that this will be the โ worldwide headquarters,โ while Strike will maintain a Unitedย States headquarters in Chicago. Itย appears reasonable to assume that Chicago, where Mallers lives, will remain the firmโs real center of gravity.
Mallers likewise mentioned Swan Bitcoinย (BTC) and wallet founder Fold in the context of corporations with โheadquarters in El Salvador.โ Onย theย otherย hand, those corporations seemย to be expanding their presence in El Salvador, not moving their headquarters there. (Mallers was speaking rather extemporaneously, so this isnโt toย emphasize he was being deceptive, just imprecise).
You canโt get there from here
Itโs now been about two months since the Biden administrationโs Choke Point 2.0 anti- cryptocurrency agenda fully came into focus. Thatโs not long โ but if these corporations were serious about taking their toys and moving somewhere else, you canย potentially expect more substantive progress by now.
And, why arenโt cryptocurrency corporations essentially leaving the Unitedย States in droves, if the regulatory environment is so hostile?
There are innumerable possible answers, all with broad implications for the industry. For one, itโs unlikely that U.S.-based employees are universally happyย to pick up stakes and move to El Salvador or Malta. And atย thisย time, the Unitedย States is still a huge center of cryptocurrency industry talent.
Regardlessย of the regulatory crackdown, the Unitedย States legal and equity systems still have numerous advantages for cryptocurrency corporations. Asย aย result, the Unitedย States has a pretty much unparalleled financial sector, including generous deal financialย resources financing channels that continue to flow regardlessย of SEC hostility.
Onย theย otherย hand, perhaps the largest reason cryptocurrency corporations arenโt aggressively pulling up stakes isย theย factย that they likely wouldnโt get much for their trouble. Most ofย course, the last two years have clarifiedย thatย simply saying youโre not a Unitedย States company wonโt protect you from the SECโs de facto worldwide jurisdiction.
More subtly, itโs not obvious that anyone with real power would respond to an exodus by reversing course on the cryptocurrency crackdown.
Althoughย while Unitedย States hiring dominates cryptocurrency, cryptocurrency jobs are incredibly modest as a share of overall Unitedย States employment (though often high-paying). And if weโre being really frank here, the Biden administration cares vastly more about fighting inflation than about anything to do with cryptocurrency, so eliminating severalย hundred jobs canย potentially look to them less like an intimidating threat than a tantalizing promise.
Democrats, especially in the executive branch, seem completely immune to the idea that cryptocurrency is anything other than a scam from top to bottom. And while Republicans are making noises about jobs, they seem far asย well disorganized and ineffectual to do anything about it, even with their control of the House.
Toย putย itย anotherย way, if your goal is to dissuade Unitedย States authorities from their cryptocurrency crackdown, leaving theย Unitedย States couldย be just as effective in the threat as in the act. Which is to say: not very effective at all.
