Is the US Really a Viable Location for Cryptocurrency Startups?
May 21, 2018
United States financial regulatory agencies, such as the CFTC and SEC, are recognized for protecting the integrity of the US capital markets through the enforcement of strict financial guidelines. While these rules help to protect both savvy and unsophisticated investors alike, they also create a complex environment for businesses to navigate. If Brady Dale is accurate in his piece “Move ‘Em Out: ICOs Don’t Seem So Scary Outside the US”, cryptocurrency startups are beginning to view the US as a less than optimal location to operate and raise funding. Stringent guidelines coupled with the widespread belief that the SEC is relatively uninformed about how to properly “police” the cryptocurrency space has created skepticism regarding the US’ long term viability as a cryptocurrency incubator.
Due diligence by regulators is necessary in the cryptocurrency environment, in which the booming nature of this environment tends to give rise to a small number of unscrupulous operators seeking to defraud unknowledgeable investors. As a consequence, regulators in the US tend to proceed with much caution, choosing to conduct in-depth analysis of newer investment ventures before reaching conclusions about their validity. For legitimate cryptocurrency businesses, the drawn-out nature of the US financial regulatory process can be costly.
Being a first-mover into a new market can present challenges to a firm, such as developing the market and navigating regulatory requirements, but being a first mover also provides tremendous benefits. If a business can establish itself as the dominant member in a cutting-edge field, it gains a significant competitive advantage over new market entrants. This dynamic is what is driving cryptocurrency startups to consider locations such as Switzerland, Lichtenstein, and Gibraltar over the United States as their place of domain. Although countries such as Switzerland and Lichtenstein still enforce guidelines on cryptocurrencies and ICO’s, crypto firms are finding it easier to raise funds and operate with greater flexibility in these destinations. While freedom of operation and the ability to act quickly are important features for prospective crypto startups, they are not the only driving concerns.
Numerous cryptocurrency startups fear that the SEC may deem certain elements of cryptocurrencies and ICO’s illegal altogether. Given the SEC’s current perspective, or even disregard for the elements and nuances of cryptocurrency investing, there is concern about the possibility that the SEC may completely ban various niches of the cryptocurrency market. The crypto ventures that built their businesses around these areas of the market will be harmfully impacted.
The cost of hiring legal representation to comply with or combat current regulatory practices is also an element that crypto startups need to take into consideration. Before launching their ICO, crypto startups are unlikely to have the funding necessary to wage a prolonged battle with a well-funded organization such as the SEC. Trying to engage the SEC in a lengthy legal struggle can be extremely draining in terms of both time and money.
While there is significant market interest in the United States regarding the cryptocurrency field, the US may soon find itself falling behind other nations in terms of its attractiveness as a host for cryptocurrency organizations. Although the US represents a potentially fertile market for crypto firms to develop, cryptocurrency startups are caught between waiting to ensure regulatory compliance is met and moving business development along quickly to capture the potential of current advantages.
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