ANALYSIS-Crypto firms bet new mayor will make New York a hub for digital assets

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By Hannah Lang

Jan. 12 (Reuters) – With U.S. cities like Miami and Austin trying to woo digital asset companies, John Wu was unsure if he was going to make New York City the permanent home of his cryptocurrency startup and blockchain Ava Labs – until Eric Adams was elected mayor in November.

Wu said the election of Adams, a bitcoin enthusiast who pledged to turn the Big Apple into a crypto hub, played “a big role” in his decision to open a permanent office in New York in November.

“Knowing that we have a friendly administration, especially in the New York area, is going to be very helpful,” said Wu, president of the company.

Adams was sworn in this month and has a lot of work to do to make New York City as welcoming as other potential crypto hubs. New York State has strict regulations for crypto businesses, including an expensive licensing requirement, and the state attorney general is cracking down on some companies in the industry.

Yet Wu and other cryptocurrency executives have said the mayor’s friendly stance could attract digital asset startups keen to assert their legitimacy alongside traditional Wall Street companies and tap into the breeding ground. of talent and the investor base of the financial center.

Chainalysis, a cryptocurrency data platform, also doubled in New York City in 2021, signing a lease in August for office space in Manhattan that can accommodate up to 200 employees.

“The new mayor’s support for the industry reinforces my belief that New York is the best place to host Chainalysis,” Michael Gronager, CEO and co-founder of Chainalysis, told Reuters. “We plan to tap into the city’s talent pool for our next phase of growth,” he added.

With the rapid growth of the digital asset industry and the surge in the value of cryptocurrencies – surpassing $ 3 trillion in November – many jurisdictions want a share of the action.

During his campaign, Adams expressed interest in developing a digital wallet for city employees and recipients of public benefits. After his election, he pledged to cash his first three paychecks in bitcoin and suggested that schools in New York City provide classes in cryptocurrency and blockchain technology.

“NYC is going to be the center of the cryptocurrency industry … Hang on!” he tweeted in November.

Adams has yet to come up with specific policies that would entice crypto companies to relocate to New York, unlike other cities like Miami and Austin whose marketing has highlighted their low energy costs and low rates. competitive taxation.

The mayor’s office did not respond to a request for comment, but Adams said he hoped his cryptocurrency-friendly stance would attract more tech talent to the city, and many executives believe it will. .

“I think it’s a very effective signaling tool for… saying, ‘Okay, we recognize that this industry can benefit everyone,'” said Zach Dexter, managing director of FTX US Derivatives, an exchange of Miami-based crypto derivatives.

REGULATORY BLOCK?

It’s still unclear whether Adams can work from city hall to reshape state regulations that the virtual currency industry has decried as too strict and costly.

“He can be a cheerleader,” said Stephen Gannon, lawyer at Murphy & McGonigle. “But most of the time, the regulatory environment is governed by the state.”

New York Attorney General Letitia James has shut down crypto lending platforms, saying they must register with her office, just like other lending platforms operating in the state or offering products in New York. Yorker.

New York also requires most digital currency related businesses to obtain a “BitLicense” and comply with know your customer, anti-money laundering and capital requirements. The New York Department of Financial Services (NYDFS), which did not respond to a request for comment, granted only 20 licenses.

“Adams’ feedback gives us more confidence,” said Haohan Xu, CEO of New York-based digital asset trading network Apifiny. “However, for all crypto companies located or seeking to be located in New York City, the focus is still on BitLicense.”

While BitLicense is a hindrance for some, Adams could offset the costs with other incentives, such as trade tax breaks.

Matt Homer, the former head of innovation at the NYDFS, said Adams could have some influence over the state’s crypto rules, especially as Governor Kathy Hochul has pledged to work with him on trade issues.

“I think he could potentially… have regulatory influence,” said Homer, currently an executive in residence at venture capital firm Nyca Partners.

Hochul’s office did not respond to a request for comment.

New York will have to compete with other crypto-friendly states and cities. Colorado, for example, passed a law in 2019 exempting digital currencies from certain securities rules. Wyoming has created a special purpose charter for crypto companies.

Miami Mayor Francis Suarez, with whom Adams once established a friendly Twitter rivalry, is also courting crypto companies, touting lower taxes and lower living costs.

Crypto executives say there is room for more than one city to emerge as a crypto destination given the booming growth of the industry. Dexter pointed out that New York has already been successful in attracting tech talent from Silicon Valley, which could also help give Adams an edge.

“There is this opportunity to have some crypto capitals,” Dexter said. “I think he’s going to have some success.”

(Reporting by Hannah Lang in Washington; editing by Michelle Price and David Gregorio)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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