The ongoing lack of regulatory clarity has become an ever-piercing thorn in the side of US-based crypto companies.
As 2023 rolls out, more and more are becoming the subject of SEC scrutiny, with allegations of legal violations surfacing left, right, and center. Even the sector’s giants aren’t safe.
The legal case between the SEC and Coinbase, filed in early June, added more earth to the already murky water. Coinbase CEO, Brian Armstrong, alleged yesterday, July 31, that the case was preceded by the regulator’s recommendations to delist all cryptocurrencies on the platform except bitcoin.
According to Armstrong, the SEC had stated all cryptocurrencies apart from bitcoin were securities, and therefore, by offering them, Coinbase violated securities law.
“We really didn’t have a choice at that point; delisting every asset other than bitcoin, which by the way, is not what the law says, would have essentially meant the end of the crypto industry in the US,” he said.
He’s not the only one who has shown concern.
“It’s hard enough to build a startup or a company. When you add regulatory opacity, it’s even harder,” said Hugo Finkelstein, Co-Founder and CEO of Rise Works. “Imagine trying to develop innovative products and services, with the added risk that regulators may completely change the rules.”
As a result, crypto companies are turning their minds to moving.
“People are moving their headquarters to the Eurozone because there’s more clarity on regulations and how to operate within compliance,” said Finkelstein.
Some of the biggest names in crypto have already publicly voiced their intentions to move abroad, and others are following suit.
“There are clearer guidelines in Europe. Crypto companies know what they have to do. They know what licenses they have to get, and they know what partners they need to partner with in order to get those licenses.”
The landmark MiCA bill was adopted by the European Commission in May 2023, setting out comprehensive rules for crypto companies within the EU. The UK followed suit with its own stablecoin rules passing into law in late June.
The rules may continue to evolve, but the first agreed basis is clear – an attractive asset for US crypto companies lost in a legal wasteland.
“Companies are deciding to make the move so they can focus on building the products and services without the added layer of risk,” said Finkelstein.
However, he explained that companies who are considering the move still highly value the skilled workforce in the US. “They still have workers in the US, and they still want to hire in the US,” he said.
The US “Brain Drain”
Aside from the potential to lose out on innovation powered by crypto, the US could be facing a “brain drain” as companies move abroad.
The US, home to the likes of Stanford and MIT, has a legacy of highly skilled computer engineers.
“There are some great engineers here in the US; it’s highly developed, more developed than in other countries,” said Finkelstein.
He explained that while crypto companies are moving, they still prefer hiring in the US.
“In some cases, they already had their teams here, and they don’t want to lay them off. And in others, it’s the highly developed talent, both in engineering and other roles related to the business,” he continued.
With evolving solutions for global teams and freelancers, the ability to hire across borders is also becoming more streamlined. Finkelstein explained that, through Rise Works, he had seen an increasing number of American companies move abroad, looking for ways to continue working with their US-based team.
According to McKinsey, 44% of large tech companies are already facing a talent shortage, with 65 of every 100 openings unfilled. While the shortage itself is a result of a variety of factors, emerging tech companies, like crypto, moving abroad with their US-based teams could create an additional hole.
“If it stays the same, if regulators continue to lack clarity, more companies are going to move out of the country. By default, it could affect the economy, the productivity, and the output,” said Finkelstein.
However, he remained hopeful and said rules were on the horizon.
“We recently saw the case against Ripple result in a positive ruling. It’s events like this that will define the industry and activate regulators to develop clear rules,” he said.
Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.
Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.