The United States’ increasing focus on Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulations has caused significant shifts in cryptocurrency market liquidity. Stricter regulations push businesses and investors to more crypto-friendly jurisdictions, impacting the U.S. market.
The U.S. has established itself as a major player in the cryptocurrency industry. Cities like San Francisco, Miami, and New York City have become hubs for crypto innovation. These locations host events that bring together industry professionals, investors, and innovators worldwide. However, the growing complexity of U.S. regulations is forcing many to explore more favorable environments.
Rising regulatory burdens in the US
The increasing regulatory burden is affecting cryptocurrency exchanges operating within the U.S. Companies are facing higher costs to comply with AML and KYC rules, leading many to reconsider their base of operations. U.S. exchanges are under strict scrutiny, and the compliance costs are becoming difficult for smaller businesses to manage.
While these regulations aim to prevent illegal activities, they have created an environment where both large and small crypto firms face challenges in meeting the regulatory requirements. This has led to a rise in firms exploring offshore options.
Offshore exchanges, which operate under more lenient regulatory frameworks, benefit from the regulatory pressure placed on U.S.-based exchanges. In the last quarter, offshore platforms experienced increased trading volumes, outperforming their onshore counterparts.
Offshore exchanges see increased demand
A recent report by Acuiti highlighted a growing trend of liquidity moving to offshore exchanges. According to the report, offshore platforms accounted for 49% of the total trading volume, while onshore exchanges lagged at 41%. Meanwhile, decentralized finance (DeFi) exchanges captured 8% of the market, with new onshore exchanges making up just 3%.
This shift indicates that while U.S.-based exchanges struggle with regulatory hurdles, offshore venues are gaining market share. This trend is expected to continue as businesses seek to reduce compliance costs and avoid the stringent regulations imposed by U.S. agencies.
Crypto-friendly jurisdictions are thriving
Countries like Switzerland, Malta, and El Salvador have emerged as attractive destinations for crypto businesses. These nations offer more relaxed regulatory frameworks and incentives, such as tax benefits and simplified licensing processes. Governments in these regions actively support blockchain initiatives, making them appealing to companies seeking a more favorable regulatory environment.
Singapore is another key player in the global cryptocurrency space. The Monetary Authority of Singapore (MAS) has established a well-defined regulatory framework that allows for the safe trading of cryptocurrencies. Singapore’s approach has become a popular destination for crypto startups, attracting institutional and retail investors.
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