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Analysis: Crypto companies bet new mayor will make New York digital asset hub

Analysis: Crypto companies bet new mayor will make New York digital asset hub
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Jan 12 (Reuters) – With US cities like Miami and Austin trying to prosecute digital asset firms, John Wu wasn’t sure if he would make New York City a permanent home for his crypto 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 cryptocurrency hub, played a “big role” in his decision to set up a permanent office in New York City in November.

“Knowing that we have friendly management, especially in the New York City area, would be very helpful,” said Wu, the company’s president.

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Adams was sworn in this month and has a lot of work to do to make New York as welcoming as other potential crypto hubs. New York State has strict regulations for crypto companies, including costly licensing requirements, and the state’s attorney general is cracking down on some companies in this sector.

However, Wu and other crypto executives said the mayor’s friendly attitude could attract digital-asset startups eager to assert their legitimacy alongside traditional Wall Street firms and tap into the deep talent pool and investor base in the financial center.

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

“The new mayor’s support for the industry strengthens my conviction that New York is the best location for Chainalysis to be based,” Michael Groniger, CEO and co-founder of Chainalysis, told Reuters in a statement. “We plan to tap into the city’s deep talent pool for the next phase of growth,” he added.

With the digital asset industry rapidly growing and the value of cryptocurrencies soaring – it topped $3 trillion in November – many jurisdictions want some part of the action.

During his campaign, Adams expressed an interest in developing a digital wallet for city employees and public benefit recipients. After his election, he pledged to take his first three Bitcoin salaries and suggested that New York schools teach courses on cryptocurrency and blockchain technology.

“New York City is going to be the epicenter of the cryptocurrency industry…just wait!” He tweeted in November.

Adams has not yet proposed specific policies that would give crypto companies an incentive to set up in New York, unlike other cities such as Miami and Austin whose commercialization has highlighted lower energy costs and competitive tax rates.

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

“I think it’s a very effective signaling tool… let’s say, well, we know that this industry can benefit everyone,” said Zach DeCoster, CEO of American FTX Derivatives, a Miami-based crypto derivatives exchange.

Regulatory way?

It remains unclear whether Adams can work from City Hall to reshape state regulations that the virtual currency industry has denounced as being too restrictive and costly.

“He can be an encouraging leader, but the regulatory environment is mostly state-driven,” said Stephen Gannon, an attorney at Murphy & McGonigle.

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

New York also requires most crypto-related companies to obtain a “BitLicense” and comply with Know Your Customer, Anti-Money Laundering, and Capital Laundering requirements. The New York Department of Financial Services (NYDFS), which did not respond to a request for comment, granted only 20 licenses.

“Adams’ comments give us more confidence,” said Haohan Xu, CEO of New York-based digital asset trading network Apifiny. “However, for all crypto companies that are in or looking to be in New York City, BitLicense remains the focus.”

While BitLicense is an obstacle for some, Adams can offset the costs with other incentives, such as business tax credits.

Matt Homer, the former head of innovation at NYDFS, said Adams could have some influence on government crypto rules, especially since Governor Kathy Hochhol has pledged to work with him on business issues.

“I think it could potentially … have an impact on regulation,” said Homer, a CEO currently resident at venture capital firm Nyca Partners.

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

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

Miami Mayor Francis Suarez, with whom Adams has already set up a friendly competition on Twitter, is also courting crypto companies, demanding lower taxes and living costs.

Crypto executives say there is room for more than one city to emerge as crypto destinations given the booming growth of the sector. Dexter noted that New York has already been able to attract tech talent from Silicon Valley, which may also help give Adams an edge.

“There is an opportunity to get a few more crypto capitals,” Dexter said. “I think it will have some success.”

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(Reporting by Hannah Lang in Washington.) Editing by Michael Price and David Gregorio

Our Standards: Thomson Reuters Trust Principles.

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