US-based crypto businesses and those targeting US clients face significant hurdles with the Securities and Exchange Commission (SEC). Bittrex, an exchange operating since 2014, which has been hit with an SEC lawsuit just after it announced it was winding down its US operations.
Despite efforts, such as Coinbase's Crypto435 initiative, a grassroots pro-crypto campaign, and increasing lobbying effort ($25.5 million spent in 2022 vs $11.5 million in 2021), the industry's prospects for regulatory clarity are limited. Consequently, a growing number of US crypto firms are preparing their Plan B, actively considering relocation or diversification to jurisdictions that offer stability and favorable legal conditions.
The most prominent countries attracting US crypto businesses include the United Kingdom, the United Arab Emirates, the European Union, Switzerland, and various offshore destinations.
While the United Kingdom is yet to establish a clear legal framework for crypto, its government has expressed aspirations to become a leading crypto hub on numerous occasions.
The Financial Services and Markets Bill, aiming to recognize crypto assets as regulated products, is currently progressing through Parliament, and the Financial Conduct Authority (FCA), the UK's financial regulatory body, has proactively taken steps to provide guidelines for crypto activities.
Coinbase, one of the largest US crypto firms (and a holder of FCA’s e-money license), has already shown interest in the UK, acknowledging the advantages of having a single authority like the FCA responsible for commodities and securities. In contrast to the conflicting statements from US regulatory bodies, the UK's regulatory approach provides greater clarity for businesses, as noted Coinbase’s CEO Brian Armstrong, speaking at the recent London Fintech Week.
United Arab Emirates
The United Arab Emirates (UAE), particularly Dubai and Abu Dhabi, have been affirming themselves as a global blockchain hub for several years already, attracting world-class crypto firms like Binance.
The Emirates implement licensing regimes for cryptoasset issuers and service providers, overseen by Dubai’s Virtual Asset Regulatory Authority and Abu Dhabi Global Markets regulators. While the licenses are rather expensive, the legal rulebooks tailored to different types of services are largely worth it.
Last week Coinbase CEO Brian Armstrong shared news about a “great meeting” with UAE’s Minister of Economy, and a blog post, praising the UAE for a “comprehensive retail framework built on the principles of economic sustainability and cross-border financial security”.
Earlier this year, a prominent CeFi lender Nexo, which was forced to close its US operations, also declared its intentions to move to Dubai in search of clear regulations. For Nexo's CEO Antoni Trenchev, Dubai's active business ecosystem and crypto-friendly banks make it an ideal location for a crypto company.
The European Union (EU) is famous for its stringent regulations, but in the case of crypto, strict rules are better than confusing declarations from different authorities. This makes the EU one of the alternative destinations for US firms.
The EU Parliament has recently approved the Markets in Crypto Assets (MiCA) legislation, which provides a clear framework for different types of crypto assets. For example, unlike the uncertain stance of the SEC's Gary Gensler on Ethereum's classification, MiCA defines it as a cryptoasset.
The framework is heavily bureaucratic, introducing mandatory authorization for stablecoin issuers, capital requirements, and other investor protection measures, but it signals the EU's commitment to fostering the development of the crypto industry.
Circle, the world’s second biggest stablecoin issuer based in the US, has recently established its headquarters in Paris, recognizing the EU's progress in regulatory clarity.
Switzerland, renowned for its crypto-friendly environment and practical approach to business, generally classifies cryptocurrencies as an asset class, like property or gold, allowing to seamlessly integrate crypto into the existing legal framework. It also recognizes tokens as securities, making tokenization operations easy.
Cryptoasset service providers can get one of the 4 licenses dispensed by the Swiss Financial Market Supervisory Authority (FINMA). Switzerland is now home to many foundations managing the treasuries of prominent blockchains, such as Ethereum, Solana, Near, and Cosmos. It also boasts a vibrant crypto finance environment.
Other destinations eyed by the US crypto firms include offshore islands like Bermuda (home to the newly created Coinbase International Exchange, so far catering only to institutional clients), non-EU European countries like Liechtenstein (hosting Bittrex Global), or Asian business hubs like Singapore (home to Huobi and VeChain).
Written by D.Center