Crypto Firms Hope for US Return as Regulatory Shifts Loom

Cryptocurrency companies once thrived in the US, conducting funding events known as initial coin offerings (ICOs) and using the raised funds to develop real-world and blockchain projects. However, the regulatory landscape shifted dramatically in 2017 with the release of the SEC's "The DAO Report," which classified many cryptocurrency tokens as securities. This change led to significant challenges for crypto firms, including complex tax implications and the need to establish offshore entities to comply with US regulations.

In response to these challenges, many crypto companies moved their operations offshore, establishing foundations in jurisdictions like the Cayman Islands, Zug in Switzerland, or Panama. These offshore entities allowed projects to sell tokens under a Regulation S exemption from US securities law or distribute them through airdrops, aiming to develop liquid markets and achieve decentralization. This strategy not only provided compliance benefits but also offered tax advantages, as foundations are not subject to the "controlled foreign corporation" rules.

The shift to offshore operations was driven by both regulatory pressures and the hope of eventually operating legally in the US. The LBRY case, in particular, had a chilling effect on the industry, as it suggested that virtually any token offering could be considered a security. This uncertainty led many projects to decentralize their operations, hoping to achieve the status of decentralized autonomous organizations (DAOs) and eventually return to the US market.

However, recent developments may signal a change in the regulatory environment. SEC Commissioner Hester Peirce has expressed interest in offering relief for token issuers and creating a regulatory framework that treats token launches as "non-securities." Additionally, legal innovations such as the decentralized unincorporated nonprofit association (DUNA) may allow autonomous organizations to function as legal entities in US states like Wyoming. These developments, along with proposed favorable tax treatments for cryptocurrency tokens, could provide a path for crypto companies to return to the US market.

The potential for a more favorable regulatory environment has sparked hope among crypto firms that they may soon be able to operate legally in the US. If the SEC provides clear guidance on token distributions and other regulatory issues, it could stem the tide of tokens being issued only to non-US persons, effectively bringing blockchain technologies developed in the US back onshore. The industry is watching closely to see if this time, the regulatory environment will truly support the return of crypto companies to the US.