When he first took office as head of the U.S. Securities and Exchange Commission (SEC) in 2021, Gary Gensler warned crypto projects that he would be skeptical of "decentralization theater." That's a category of misleading claims sometimes made by DAOs [decentralized autonomous organizations] or protocols to be effectively leaderless (and therefore maybe unprosecutable), when in fact they have an obvious core leadership team.
Now, the ongoing regulatory crackdown by Gensler and the broader Biden administration appears to be triggering a different kind of decentralization: major crypto firms leaving the United States.
Firms including exchanges Coinbase and Gemini, Bitcoin frontend Strike and asset management platform Bakkt have all gestured towards exiting the U.S. in recent weeks. Investor Cathie Wood, known for her huge long bets on both Tesla and Coinbase, argued this week that the U.S. is "losing the Bitcoin movement" as crypto shifts away from the U.S.
This sort of geographical shift really does happen, and can be very bad for over-regulated jurisdictions – for instance, drugmaker Bayer has recently said it will shift its business focus away from Europe for regulatory reasons.
But on deeper examination, some of the signaling by crypto companies seems less like a real shift than another kind of decentralization theater. And just like the protocol variety, it might not do much to sway regulators.
The other kind of leverage
There are two basic ways to view crypto companies' gestures towards leaving the U.S. Some may be genuinely motivated to do so by regulatory uncertainty or an anticipated crackdown. But they may also be attempting to exert leverage on U.S. regulators by threatening to take jobs and revenue elsewhere.
For now, many of the news items painting the picture of a mass crypto exodus from the United States seem to fall in the second category: Maybe not pure theatrics, but pretty close.
Some of the headlines are the result of rhetoric getting overplayed by credulous media. A Bakkt executive said they liked Europe's MiCA framework, and signaled expansion plans – but no intent to leave the U.S. Gemini's expansion outside of the U.S. has been incorrectly described as an "exit." Similarly, while Coinbase is signaling global expansion, there's not much to show for it so far – their international exchange is so far a very limited offering.
Some gestures seem more substantive, but have unclear real consequences. At the Bitcoin 2023 conference in Miami last week, Strike CEO Jack Mallers gave an impassioned denouncement of U.S. regulators, then announced that Strike would be "headquartered" in El Salvador. But Strike has clarified to CoinDesk that this will be the "global headquarters," while Strike will maintain a U.S. headquarters in Chicago. It seems reasonable to assume that Chicago, where Mallers lives, will remain the firm's real center of gravity.
Mallers also mentioned Swan Bitcoin and wallet creator Fold in the context of companies with "headquarters in El Salvador." But those companies appear to be expanding their presence in El Salvador, not moving their headquarters there. (Mallers was speaking rather extemporaneously, so this isn't to say he was being deceptive, just imprecise).
You can't get there from here
It's now been about two months since the Biden administration's Choke Point 2.0 anti-crypto agenda fully came into focus. That's not long – but if these companies were serious about taking their toys and moving somewhere else, you might expect more substantive progress by now.
So, why aren't crypto companies actually leaving the U.S. in droves, if the regulatory environment is so hostile?
There are innumerable possible answers, all with broad implications for the industry. For one, it's unlikely that U.S.-based employees are universally excited to pick up stakes and move to El Salvador or Malta. And right now, the U.S. is still a huge center of crypto industry talent.
Despite the regulatory crackdown, the U.S. legal and equity systems still have many advantages for crypto companies. In turn, the U.S. has a pretty much unparalleled financial sector, including generous venture capital funding channels that continue to flow despite SEC hostility.
But perhaps the biggest reason crypto companies aren't aggressively pulling up stakes is that they likely wouldn't get much for their trouble. Most obviously, the last two years have made it clear that simply saying you're not a U.S. firm won't protect you from the SEC's de facto global jurisdiction.
More subtly, it's not obvious that anyone with real power would respond to an exodus by reversing course on the crypto crackdown.
While U.S. hiring dominates crypto, crypto jobs are extremely modest as a share of overall U.S. employment (though often high-paying). And if we're being really frank here, the Biden administration cares vastly more about fighting inflation than about anything to do with crypto, so eliminating a few hundred jobs might look to them less like an intimidating threat than a tantalizing promise.
Democrats, especially in the executive branch, seem completely immune to the idea that crypto is anything other than a scam from top to bottom. And while Republicans are making noises about jobs, they seem far too disorganized and ineffectual to do anything about it, even with their control of the House.
In other words, if your goal is to dissuade U.S. authorities from their crypto crackdown, leaving the United States may be just as effective in the threat as in the act. That is – not very effective at all.
– David Z. Morris
@davidzmorris
david.morris@coindesk.com
