A constant source of headlines in the crypto industry is regulation. It seems we can’t stop talking about it. Whether these are pro-crypto regulations that are cheered by industry watchers or the endless back and forth between crypto companies and regulators, it never seems to end.
But there is a good reason for this; the crypto regulations in any specific region could make or break the industry and trigger market changes. Case in point, the crypto industry is seeing a trend of businesses moving offshore as a result of ongoing regulatory crackdowns in the United States.
Two of the most prominent examples of these are the crypto exchanges Coinbase and Gemini which have announced that they will open offshore branches. This comes after both were targeted by SEC lawsuits in the last year and the endless accusations of selling unregistered securities.
With this, we can expect that other crypto ventures of all sizes will follow suit. After all, if two of the giants of the industry that are so successful they are listed on NASDAQ can’t seem to cope with US regulations, what hope is there for the rest?
But besides the collective frustration with the SEC, there are many other benefits of crypto companies moving offshore.
Tax Incentives
Taxes can be a major expense for any business and there is a long and storied history of them moving to other countries to get some form of a tax break. This is true for the crypto industry as well as many have sought greener pastures in order to enjoy lower or non-existent taxes. This is why so many crypto companies are based in countries like the Bahamas or Malta.
In fact, there are countries that have curated their tax codes especially to attract industries like cryptocurrency. This is also coupled with the fact that countries like the United States don’t have the most stellar record when it comes to crypto-related tax. For years, industry stakeholders have been begging for more comprehensive crypto tax laws to be put in place. When they were, they saw cryptocurrency taxed at the same rates as traditional capital gains, which can be up to 37% in the US.
By moving operations offshore, crypto companies can save immensely on their tax bill and this, naturally, has been a major attraction.
Use Cases and Demand Among Consumers
It is also worth noting that within the crypto market, there is a demand for offshore crypto services among consumers themselves. This is especially true for those who live in countries where cryptocurrency or other products are banned or cannot be used freely. Take gambling, which sees a lot of restrictions in countries like Canada and in some US states. Those who live in these states might not be able to access physical betting services but might find it easier to bet from a crypto casino that is located outside of their jurisdiction.
Some casino entrepreneurs who find it difficult to obtain licenses in certain places might choose to open an offshore operation but still market to people in these places. This can be seen in countries like Korea, where online gambling is prohibited, and the government does not give out licenses to people in the country to set up operations. Despite this, there is a growing online casino industry in Korea that is being fueled by offshore operations.
Consumers have been shown to patronize crypto companies outside of their jurisdictions to have their needs met. As such, an offshore operation can be a way for entrepreneurs to tap into these needs and innovate in the face of regulatory ambiguity.
Welcoming Atmosphere
The response of various countries to the cryptocurrency industry has not been the same across the board. While there are some that have been rather hostile to the cryptocurrency industry, others have gone out of their way to create a welcoming atmosphere for these companies. These include low requirements for setting up shop, government grants, and so on. As such, there is a crop of countries that have attracted many crypto companies.
And investing in offshore operations in these countries could make business processes smoother for crypto entrepreneurs. Compared to a situation where they are endlessly fighting with regulators and struggling to access business support, offshore operations offer a level of peace of mind for crypto companies that might just be priceless. As we’ve seen with Coinbase and Gemini, even the most successful crypto companies could eventually throw in the towel and move elsewhere.
In 2023 and beyond, we’ll probably see more high-profile companies make the move to fully divest from countries like the US or deliberately expand their presence elsewhere. This could also extend to smaller companies that might see a foreign expansion as a better use of resources than dealing with a hostile regulatory environment.
Lower Operational Costs
We’ve already touched on the lower taxes that have compelled some crypto businesses to move offshore, but it is also worth noting that moving to specific countries might reduce other operational costs. In certain countries and states, for example, a crypto company might have to maintain a physical location to obtain a license to operate. In major cities like New York, this can be a major operational expense.
On the other hand, some other countries do not have this requirement. And if they do, the cost of renting and furnishing a space will be comparatively cheaper thanks to exchange rates. Lower operational costs on top of lower tax requirements will ultimately mean that crypto businesses will get to keep more of their profits, which is a massive incentive.
Conclusion
One of the biggest trends in the crypto industry in 2023 is the boom of offshore operations. These have been years in the making due to a harsh regulatory environment in countries like the US and the curation of other locations as havens for crypto business. Thanks to a combination of more attractive tax laws, lower costs, a growing demand for offshore crypto services, and an overall better atmosphere, this trend does not look like it will be stopping soon.
In the coming years, we will see the global crypto landscape change as some countries will see an exit of crypto business and others will see a spike in entry.
A constant source of headlines in the crypto industry is regulation. It seems we can’t stop talking about it. Whether these are pro-crypto regulations that are cheered by industry watchers or the endless back and forth between crypto companies and regulators, it never seems to end.
But there is a good reason for this; the crypto regulations in any specific region could make or break the industry and trigger market changes. Case in point, the crypto industry is seeing a trend of businesses moving offshore as a result of ongoing regulatory crackdowns in the United States.
Two of the most prominent examples of these are the crypto exchanges Coinbase and Gemini which have announced that they will open offshore branches. This comes after both were targeted by SEC lawsuits in the last year and the endless accusations of selling unregistered securities.
With this, we can expect that other crypto ventures of all sizes will follow suit. After all, if two of the giants of the industry that are so successful they are listed on NASDAQ can’t seem to cope with US regulations, what hope is there for the rest?
But besides the collective frustration with the SEC, there are many other benefits of crypto companies moving offshore.
Tax Incentives
Taxes can be a major expense for any business and there is a long and storied history of them moving to other countries to get some form of a tax break. This is true for the crypto industry as well as many have sought greener pastures in order to enjoy lower or non-existent taxes. This is why so many crypto companies are based in countries like the Bahamas or Malta.
In fact, there are countries that have curated their tax codes especially to attract industries like cryptocurrency. This is also coupled with the fact that countries like the United States don’t have the most stellar record when it comes to crypto-related tax. For years, industry stakeholders have been begging for more comprehensive crypto tax laws to be put in place. When they were, they saw cryptocurrency taxed at the same rates as traditional capital gains, which can be up to 37% in the US.
By moving operations offshore, crypto companies can save immensely on their tax bill and this, naturally, has been a major attraction.
Use Cases and Demand Among Consumers
It is also worth noting that within the crypto market, there is a demand for offshore crypto services among consumers themselves. This is especially true for those who live in countries where cryptocurrency or other products are banned or cannot be used freely. Take gambling, which sees a lot of restrictions in countries like Canada and in some US states. Those who live in these states might not be able to access physical betting services but might find it easier to bet from a crypto casino that is located outside of their jurisdiction.
Some casino entrepreneurs who find it difficult to obtain licenses in certain places might choose to open an offshore operation but still market to people in these places. This can be seen in countries like Korea, where online gambling is prohibited, and the government does not give out licenses to people in the country to set up operations. Despite this, there is a growing online casino industry in Korea that is being fueled by offshore operations.
Consumers have been shown to patronize crypto companies outside of their jurisdictions to have their needs met. As such, an offshore operation can be a way for entrepreneurs to tap into these needs and innovate in the face of regulatory ambiguity.
Welcoming Atmosphere
The response of various countries to the cryptocurrency industry has not been the same across the board. While there are some that have been rather hostile to the cryptocurrency industry, others have gone out of their way to create a welcoming atmosphere for these companies. These include low requirements for setting up shop, government grants, and so on. As such, there is a crop of countries that have attracted many crypto companies.
And investing in offshore operations in these countries could make business processes smoother for crypto entrepreneurs. Compared to a situation where they are endlessly fighting with regulators and struggling to access business support, offshore operations offer a level of peace of mind for crypto companies that might just be priceless. As we’ve seen with Coinbase and Gemini, even the most successful crypto companies could eventually throw in the towel and move elsewhere.
In 2023 and beyond, we’ll probably see more high-profile companies make the move to fully divest from countries like the US or deliberately expand their presence elsewhere. This could also extend to smaller companies that might see a foreign expansion as a better use of resources than dealing with a hostile regulatory environment.
Lower Operational Costs
We’ve already touched on the lower taxes that have compelled some crypto businesses to move offshore, but it is also worth noting that moving to specific countries might reduce other operational costs. In certain countries and states, for example, a crypto company might have to maintain a physical location to obtain a license to operate. In major cities like New York, this can be a major operational expense.
On the other hand, some other countries do not have this requirement. And if they do, the cost of renting and furnishing a space will be comparatively cheaper thanks to exchange rates. Lower operational costs on top of lower tax requirements will ultimately mean that crypto businesses will get to keep more of their profits, which is a massive incentive.
Conclusion
One of the biggest trends in the crypto industry in 2023 is the boom of offshore operations. These have been years in the making due to a harsh regulatory environment in countries like the US and the curation of other locations as havens for crypto business. Thanks to a combination of more attractive tax laws, lower costs, a growing demand for offshore crypto services, and an overall better atmosphere, this trend does not look like it will be stopping soon.
In the coming years, we will see the global crypto landscape change as some countries will see an exit of crypto business and others will see a spike in entry.
