The wave of government enforcement against cryptocurrency companies is beginning to remake the industry.

Coinbase, the largest cryptocurrency exchange in the United States, has Opened a business in Bermuda. Gemini, a rival firm based in New York, is looking for a license in the United Arab Emirates. And Bittrex, an exchange in Seattle, shut down its US trading.

After years of trying to shape federal regulation in the United States, a growing number of US crypto companies, particularly exchanges where customers buy and sell digital tokens, are exploring plans to develop their businesses abroad. They are expanding into new markets and considering leaving the country altogether.

The moves are a response to a growing police crackdown that has made the United States one of the strictest crypto regulators in the world. On Tuesday, the Securities and Exchange Commission filed a long-anticipated lawsuit against Coinbase, arguing that the exchange was trading securities without proper registration. A day earlier, the SEC sued international crypto exchange Binance, seeking to delist its founder from the US stock market.

The app is a turning point for an industry that seemed to be gaining mainstream acceptance just a year ago. Cryptocurrencies were created in an anti-government spirit, as a decentralized financial system that would operate outside the reach of regulators. But as the market soared in 2021, cryptocurrency firms set up a lobbying apparatus in Washington and sought to rebrand themselves as a compliant company eager to work with the government.

That effort has largely failed. Last year, a series of crypto crises generated widespread suspicion from the industry. Congress, regulators, and the public have become increasingly hostile.

These days, the prospect of leaving the United States is “the biggest thing crypto startups are talking about and thinking about,” said Nic Carter, founder of Castle Island Ventures, a crypto venture capital firm. “You can move to the Cayman Islands, London or Bermuda, or have a significant faction of your executives there, Hong Kong or Dubai.”

In theory, a large exodus from the United States could eventually make it more difficult for Americans to trade digital currencies and experiment with new crypto products. But not all American crypto companies are looking to relocate: Companies that specialize in mining Bitcoin, an energy-intensive process, have flocked to the United States in search of cheap energy. And even internationally expanding cryptocurrency companies plan to fight for more favorable rules in Washington.

Still, tensions between the industry and US regulators have been on the rise since early 2021, when Gary Gensler, a staunch crypto critic, was appointed SEC chairman. For two years, the SEC has argued that nearly all cryptocurrencies should be classified as securities, like stocks trade on Wall Street, which would force crypto companies to register with the agency and subject them to strict disclosure requirements.

A new round of hostilities began in November following the collapse of FTX, the cryptocurrency exchange founded by Sam Bankman-Fried. Over the next few months, the SEC sued a number of cryptocurrency lending firms and cracked down on an investment product marketed by Kraken, a popular US exchange.

At the same time, several major financial regulators issued statements warning banks about the risks of cryptocurrencies. industry supporters labelled the government’s actions Operation Choke Point 2.0, alluding to an Obama-era law enforcement campaign to prevent banks from working with certain companies.

“Things definitely took a big turn after the FTX crash,” said Perianne Boring, who runs the Digital Chamber of Commerce, a cryptocurrency advocacy group. “We had a lot of good faith efforts going on at the SEC and even with other policymakers who are now the big critics.”

As the largest crypto company in the US, Coinbase has been at the center of the regulatory debate.

After its founding in 2012, Coinbase rose to fame by promoting itself as the most trusted and compliant crypto exchange. Two years ago, it went public, a watershed moment that seemed to signal the industry’s growing role in American commerce.

Since then, Coinbase has repeatedly clashed with federal regulators. In September 2021, after the SEC blocked the company from offering a popular investment product, the company’s CEO, Brian Armstrong, accused the “really sketchy behavior” agency.

In Washington, Coinbase and other major US crypto firms have fought back against the increasingly intense regulatory regime, pressing lawmakers to create rules tailored for the digital asset industry. But as those efforts fell apart, some cryptocurrency companies began looking abroad.

At a conference in London in April, Mr. Armstrong saying The United States needed clearer rules governing cryptocurrencies. “If the United States doesn’t have this,” he said, “these companies will be built in tax havens.”

Coinbase was already starting to move in that direction. In May, the company said it was opening an international exchange, based in Bermuda, that would allow users abroad to conduct a type of high-risk, high-reward trading that is prohibited in the United States.

in a statement In announcing the deal, Coinbase said it “remained committed to the US,” but noted that other countries were beginning to “strategically position themselves as crypto hubs.” The company did not respond to a request for comment.

“We see countries that, instead of trying to litigate, actually sat down, assessed the risk in the market, and made new rules,” said Kristin Smith, executive director of the Blockchain Association, a cryptocurrency advocacy group. “We’re going to see different projects and developers launch and initially operate abroad.”

Still, a complete abandonment of the United States is unlikely anytime soon. The crypto industry has always been global in scope, with companies spread across Europe, Asia and the Caribbean. Coinbase plans to challenge the SEC’s lawsuit, and a victory could give the industry new ammunition to push through the laws it wants.

But as enforcement actions mount, other US crypto firms are taking steps to expand their businesses abroad.

Last week, Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, said it was seeking a license to operate in the Emirates. He advertisement He cited statistics showing that the Emirates had overtaken the United States in cryptocurrency adoption. A Gemini spokeswoman did not respond to a request for comment.

In March, Bittrex announced that it would halt operations in the United States, quoting “the current US regulatory and economic environment.” A few weeks later, the SEC defendant crypto exchange; its American arm has archived due to bankruptcy, while the company’s global exchange continues to operate abroad.

In a statement, Oliver Lynch, chief executive of Bittrex’s global operation, said it was “no surprise” that cryptocurrency companies were looking abroad. “The chaotic regulatory environment in the US is only serving to compound the problems of the crypto winter and scandals of 2022,” he said.

For business founders with relatively small crypto companies, a move is especially tempting. “For startups, it’s easier,” said Mr. Carter of Castle Island Ventures. “There’s definitely an appetite to consider other jurisdictions.”

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