Crypto companies Coinbase, Ripple are playing poker with the SEC

Crypto companies Coinbase, Ripple are playing poker with the SEC

Big players are hoping the SEC and Washington will take what crypto watchers see as bluffs seriously and soften regulators’ hard line on the industry.

Roman Strelchenko | 500px Plus | Getty Images

Cryptocurrency companies are playing poker with the Securities and Exchange Commission, boldly threatening to leave the US as the regulator ramps up pressure on the industry to play by the rules.

Big players are hoping the SEC and Washington will take what crypto watchers see as bluffs seriously and soften regulators’ hard line on the industry.

Executives from firms including crypto exchange Coinbase and blockchain services company Ripple have heaped comments to the SEC, signaling plans to move operations overseas to garner support and send a message to U.S. politicians who are concerned that the country could be missing out on an important technological innovation.

Coinbase CEO Brian Armstrong said last week that the SEC is on a “lonely crusade” with its crackdown on certain crypto companies. He added that Chairman Gary Gensler has taken an “anti-crypto view,” despite having previously been an industry supporter during his time as an economics professor at MIT’s 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 believe [Gensler is] I’m definitely trying to regulate the industry enough to maybe restrict it as well. But he’s filed some lawsuits, and I think that’s pretty unhelpful for the US industry at large.

Ripple CEO Brad Garlinghouse also cracked down on the SEC this week. When asked for his message to Gensler when the company announced an expansion into Dubai, he quipped, “Who?” initiated lawsuit will have issued.

“I find it sad as a company incorporated in the United States and as someone who is a US citizen. I’m sad about that. The US is not just being overtaken a little, it’s being overtaken significantly,” Garlinghouse said.

“The difficult thing is you have a country that I think has put politics above politics and that’s not a good decision when you’re trying to invest in the economy.”

Dubai and Europe have proven to be much more benign markets with their regulatory frameworks for virtual assets, Garlinghouse said, adding, “The United States is definitely stuck.”

Garlinghouse, Armstrong and other crypto bosses have threatened to leave the US, voicing industry concerns that the SEC’s crackdown is becoming too harsh. The regulator has taken tough enforcement action against companies like Ripple, Coinbase, Kraken and Paxos, accusing them of violating securities laws.

The SEC believes that most tokens on the market could be considered securities, which would subject them to significantly stricter registration and disclosure requirements. Crypto firms have naturally denied that assets they issue or list on their platforms should be treated as securities.

Do you stay or do you go?

The question is: could they actually walk? It looks pretty unlikely.

“The US is one of the largest markets for crypto and as such it is highly unlikely to go away,” Larisa Yarovaya, associate professor of finance at Southampton University, told CNBC via email.

“The biggest fear of crypto companies is that regulation will create panic among crypto investors and prices will plummet. Appearing confident (even arrogant) is a common tactic used by crypto company CEOs. They believe this will translate into investor confidence and overconfidence.” In some cases, this translates into further irrational investor behavior, e.g. B. HODL [hold on for dear life] even if the markets fall.”

Ripple’s Garlinghouse has been threatening to move his company’s headquarters overseas since 2020. In October of the same year, he said that the UK, Switzerland, Singapore, Japan and the United Arab Emirates were being considered for a potential Ripple move abroad.

That hasn’t happened yet.

Coinbase’s chief, meanwhile, suggested at a London fintech conference in April that the company would consider options for more overseas investments, including a shift away from the US to other countries, if the US exchange doesn’t get regulatory clarity

A month later, Armstrong said that Coinbase “will not be moving overseas.”

The UAE is issuing a “clear rulebook” on cryptocurrency regulation, Coinbase CEO says

“We will always have a US presence … But the US is a little behind at the moment,” he told CNBC.

According to a survey conducted by Morning Consult for Coinbase, the US is a huge market for the industry. Over 50 million Americans say they own crypto.

“For these companies, the focus is much more on the international markets. But at the higher end of the market, I just personally can’t imagine completely exiting the US market ever happening,” Jonathan Levin, co-founder of Chainalysis, told CNBC in an interview in London.

“It’s more about how much you’re investing in a new international expansion, where that might not have been as high on the agenda, but now let’s look at France and the UK.”

In addition, moving these already large companies out of the US would be difficult.

“Even though these industries are virtual by nature, they still need people, and people have families, mortgages and where they live. Replacing them with local talent in the new location may be easier said than done,” George Weston, a partner at global offshore law firm Harneys, told CNBC via email.

Regulatory certainty outside the US

Crypto bosses are addressing concerns from some officials that the US has slipped into regulatory uncertainty while other jurisdictions, such as the European Union and the UK, have pushed ahead with proposals for regulatory frameworks for digital assets.

Hester Peirce, a commissioner of the SEC, told a Financial Times conference last week that the US is “shooting itself in the foot for not having a regulatory system in the US.”

She praised the EU’s progress in passing legislation for the crypto industry.

The EU is expected to introduce the first comprehensive regime for digital assets, known as Markets in Crypto Assets (MiCA), sometime in 2024.

“It’s really commendable that Europe did it so quickly,” Peirce said, according to Reuters. “If we built a good regulatory system, people would come. I think you will see that at MiCA.”

Diego Ballo Ossio, a partner at law firm Clifford Chance, said other jurisdictions, including the UK and EU, are changing their legal frameworks to create clear regulatory regimes for exchanges.

The financial system is in dire need of an update, says Coinbase CEO

“This means other countries are effectively offering US-based exchanges an option – a place to relocate to. It’s not unthinkable that a US exchange has 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 do business in the US and that it intends to establish regulated operations in the UK

Patrick Hillman, the company’s chief strategy officer, said the US has been “very confusing over the past six months,” citing the SEC’s crackdown on Coinbase as a sign the country is in an “odd situation.”

While the US crypto industry may be making empty threats right now, if regulators in America don’t push through thoughtful regulation, there could be a real problem.

“My conclusion is that I think getting up and out of the US is more of a saber-rattling act than a genuine desire, but if the SEC continues on its chosen path, many firms will have no choice but to try a different way of doing business .”It’s existential,” Daniel Csefalvay, a partner at law firm BCLP, told CNBC via email.