Global Courant 2023-05-15 04:57:57
Big players are hoping that the SEC and Washington will take what crypto watchers see as bluffs seriously and soften the hard line regulators have taken against 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 stay on the line.
Big players are hoping that the SEC and Washington will take what crypto watchers see as bluffs seriously and soften the hard line regulators have taken against the industry.
Executives at companies including crypto exchange Coinbase and blockchain service company Ripple have piled on comments lying in the SEC signaling plans to move business overseas, in an effort to rally support and send a message to concerned American politicians that the country may be missing out on an important technological innovation.
Coinbase CEO Brian Armstrong said last week that the SEC was on a “lone crusade” with its crackdown on certain crypto companies. He added that chairman Gary Gensler had taken an “anti-crypto stance” despite previously being an industry supporter during his time as an economics professor at the MIT Sloan School of Management.
“The SEC is a bit of an outlier here,” Armstrong told CNBC’s Dan Murphy in an interview in Dubai. “I don’t think (Gensler is trying to) necessarily regulate the industry as much as possible, maybe also curtail it. But he’s filed some lawsuits and I think it’s kind of useless to big industry in the US.”
Ripple CEO Brad Garlinghouse also raided the SEC this week. When asked about his message to Gensler when the company announced an expansion to Dubai, he joked, “Who?” before later saying that Ripple will have spent $200 million defending itself against a lawsuit filed by the regulator by the time it is over.
“I think it’s sad as a company that started in the United States and as someone who is a US citizen. I’m sad about this. The US is being passed over not just by a little bit, but by a lot,” Garlinghouse said. .
“The hard thing about this is you have a country that I think has put politics before policy and that’s not a good decision if you’re trying to invest in the economy.”
Dubai and Europe have proven to be much more favorable markets with their regulatory frameworks for virtual assets, Garlinghouse said, adding, “The United States is absolutely stuck.”
Garlinghouse, Armstrong and other crypto bosses have threatened 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 violating securities laws.
The SEC’s claim is that most tokens on the market qualify as securities, which would require them to meet much stricter registration and disclosure requirements. Crypto companies have, of course, denied that assets they issue or list on their platforms should be treated as securities.
Will they stay or will they leave?
The question is, could they really leave? It looks quite unlikely.
“The US is one of the biggest markets for crypto, so it is highly unlikely they will leave,” Larisa Yarovaya, an associate professor of finance at Southampton University, told CNBC via email.
“The biggest fear of crypto companies is that regulation will cause panic among crypto investors and prices will fall. Appearing confident (even arrogant) is a common tactic of CEOs of crypto companies. They believe this will translate into investor confidence , overconfidence in some cases, and will encourage further irrational behavior among investors, e.g. HODL (hold on for dear life) even when markets are falling.”
Ripple’s Garlinghouse has been threatening to move its company’s headquarters abroad since 2020. In October of that year, he said that the UK, Switzerland, Singapore, Japan and the United Arab Emirates were being considered for Ripple’s possible move abroad.
That hasn’t happened yet.
Meanwhile, Coinbase’s chief suggested at a fintech conference in London in April that the company would consider options to invest more abroad, including moving from the US to elsewhere, if the exchange fails to get regulatory clarity in the US.
A month later, Armstrong said Coinbase “will not move overseas.”
“We will always have a presence in the US… But the US is a little bit behind right now,” he told CNBC.
The US is a huge market for the industry, with more than 50 million Americans claiming to own crypto, according to a survey conducted by Morning Consult for Coinbase.
“There’s a much greater focus on the international markets for those companies. But at the high end of the market, I personally can’t see you ever completely leaving the US market,” said Jonathan Levin, co-founder of Chainalysis, told CNBC in an interview in London.
“It’s more about how much you invest in new international expansion where maybe that wasn’t high on the agenda, but now let’s look at France, let’s look at the UK”
In addition, the practicalities of relocating these already large companies from the US would be difficult.
“While these industries are virtual in nature, they still need people and people have families, mortgages and preferences for where they live. Replacing them with local talent in the new place may be easier said than done,” George Weston, a partner at global offshore law firm Harneys, CNBC told us via email.
Regulatory certainty outside the US
Crypto bosses are responding to some officials’ concerns that the US is shrouded in regulatory uncertainty, while other jurisdictions, such as the European Union and the UK, have made progress on proposed regulatory frameworks for digital assets.
Hester Peirce, a commissioner at the SEC, said at a Financial Times conference last week that the US is “shooting ourselves in the foot by not having a regulatory regime in the US.”
She praised the EU for its progress in passing laws for the crypto industry.
The EU is expected to introduce the first comprehensive set of digital asset regulations known as Markets in Crypto Assets (MiCA) sometime in 2024.
“It’s really commendable that Europe got that done so quickly,” Peirce said, according to Reuters. “If we built a good regulatory regime, people would come. I think you’ll see that with MiCA.”
Diego Ballo Ossio, a partner at law firm Clifford Chance, said other jurisdictions, including the UK and the EU, are changing their legal frameworks to create clear regulatory regimes for exchanges.
“This means that other countries are effectively offering US exchanges an option – a place to move to. It is not inconceivable that a US exchange decided to create operational hubs in non-US jurisdictions where the product can be safely innovated and improved. ” he told CNBC.
Binance, the world’s largest crypto exchange, recently said that it has become more difficult for the company to operate in the US and that it planned to set up a regulated operation in the UK
Patrick Hillman, the company’s chief strategy officer, said the US has been “very confusing over the past six months,” pointing to the SEC’s actions against Coinbase as a sign of how the country is in a “weird place.” .
While the US crypto industry may be spewing empty threats right now, a real problem could arise if regulators in America don’t move forward with thoughtful regulation.
“My bottom line is that I think it’s more a clatter of arms than a genuine desire to stand up and leave the US, but if the SEC continues on its path, many companies will have no choice but to take another course of action. It’s existential,” Daniel Csefalvay, a partner at law firm BCLP, told CNBC via email.
