Every Monday night, members of New York City's cryptocurrency scene gather in midtown Manhattan to talk shop over cocktails at an upscale food hall. Industry veterans mingle with newcomers, business cards are exchanged and new connections are made.
They've all come together for CryptoMondays, a long-running networking event for New York crypto enthusiasts. The meetup group turned decentralized autonomous organization (DAO) was founded in New York in 2018 and has since expanded to 70 cities around the world, but the New York chapter remains the largest and most active.
CryptoMondays was so successful that Imani Jones, the DAO events director, decided that the event should be expanded: In February, she organized a party at the New York Blockchain Center, with crypto vendors, an NFT exhibit, and a band. She envisioned it would be the "culmination of fashion, art, music and technology."
"If you want to whet your appetite and find out what crypto is all about, this is perfect," Jones said of the party, which she hopes will be the first in a monthly series. "It's a space to ask basic questions."
Jones, a Brooklyn resident who got into cryptocurrency after deciding to accept crypto payments for her small business, hopes New York City Mayor Eric Adams can follow through on his plans to make the city the "center of the cryptocurrency industry."
"I'm thrilled that Adams has accepted his first three paychecks in bitcoin," Jones said. "I think it shows he's serious about making New York one of the centers of crypto innovation."
Adams' promise to get paid in bitcoin (BTC) was one of many attempts to woo the city's crypto industry during his candidacy, including a meeting with crypto elite at a fundraiser hosted by Galaxy Digital's Mike Novogratz.
But there's a problem: New York has a number of inherently unattractive features that have deterred many in the crypto industry from setting up shop in the Empire State.
High taxes and a high cost of living discourage companies that could theoretically work from anywhere. And, most importantly, an oppressive and opaque regulatory system topped by the notoriously difficult-to-obtain BitLicense, a special license required to do business as a crypto company in New York.
The worst part? There's pretty much nothing Adams can do to improve the situation, as most of the hurdles are the result of state laws over which he has no control as mayor.
The only thing Adams can really do to sweeten the deal is maintain friendly relations with industry and hope that the benefits of the Big Apple will do the rest. New York is the largest and wealthiest city in the United States and the financial capital of the world. It's also an increasingly popular hub for technology companies, from small startups to titans like Apple (AAPL) and Google (GOOGL), making it a fertile hunting ground for well-trained employees and cash-rich customers.
For a growing number of industry players, these advantages are worth jumping through New York's hoops.
They also explain why New York, despite seemingly doing everything in its power to deter the crypto industry, has become the unlikely capital of the crypto industry in the United States.
Crypto in the Big AppleThe cryptocurrency industry is global, but has established a stronghold in the U.S. in New York - despite the state's regulatory challenges. New York is not only at the intersection of the technology and financial industries, but also offers a rich and deep pool of skilled talent and wealthy potential customers.
Major players in the crypto space such as NFT marketplace OpenSea, blockchain research firm Chainalysis, Ethereum-based tech company ConsenSys, and exchanges such as Gemini got their start in New York and have maintained their headquarters in the city.
New York-based crypto startups (of which there are over 80) raised $6.5 billion last year, accounting for nearly half of all investments flowing into U.S. crypto companies in 2021, and about 12% of all tech investments in New York City.
In the last quarter of 2021 alone, New York crypto companies like NYDIG and Fireblocks, which provides crypto custody services to institutional investors, raised a combined $3.2 billion - the largest quarter for crypto investment on record.
Investors like Fred Wilson - the city's leading venture capitalist who has made numerous bets on cryptocurrencies - of Union Square Ventures are also based in NYC. And outside the city, crypto companies like Digital Currency Group (the parent company of CoinDesk) and Celsius have offices in nearby Connecticut and New Jersey, respectively. DCG kept its headquarters in New York until the end of 2021.
"New York City is a high point in the crypto industry," said Michael Shaulov, CEO of Fireblocks, one of New York's growing number of crypto "unicorns" (startups with valuations over $1 billion).
"New York as a location not only offers an unbeatable pool of talent, but also the largest financial institutions in the world. This has been very beneficial for our client network," Shaulov added.
But crypto startups don't have to be worth $1 billion to take advantage of the city. Even unsophisticated startups and would-be entrepreneurs have found that the odds of success in New York are worth the effort.
One of them is Jake Heid, who moved to New York from Philadelphia five years ago for his studies. Heid and his business partner Ahmet Oz met in the Baruch College dorms and decided to start a crypto company together - an NFT marketplace specifically for memes - inspired by what Heid called Baruch College's "hustler culture."
According to Heid, Baruch was a sort of incubator for the city's crypto industry. He said his classmates went on to work for investment banks and start their own crypto ventures, and many of Heid's professors - including Lawrence Zicklin, for whom the Baruch Business School is named - have embraced crypto and made it a focus of business classes.
"Almost all of them, even if they don't understand it, believe blockchain is the future," Heid said.
Heid has not been deterred by the challenges of starting a crypto business in New York.
"I know it's difficult, but I want to make it work. I love New York," Heid said. "There are a lot of legitimate complaints about regulation and taxes in New York, but I'm willing to pay more to live here. I think it's worth it."
Longtime crypto investor and founder of CryptoMondays Lou Kerner sees it differently. After living in New York for years, Kerner moved out of his New York apartment in June 2020 and has since been living a lifestyle he calls "nomadic," though he says he still spends about half his time in the city.
"New York is the financial center of the U.S. and arguably the world," Kerner says. "So it's not surprising that the ecosystem in New York is thriving, even given the terrible regulatory framework.
But when push comes to shove, Kerner said, many potential founders who got their start in New York decide to leave the city to launch their companies.
"This is the center of everything, of course people want to move here. But when they focus more on starting a business, they realize it's a terrible place," Kerner said.
Heid, however, can't imagine being among those who leave New York for Puerto Rico or Miami.
"A lot of businesses are not loyal to the city where they were founded," Heid said.
"To do business in New York, crypto companies must obtain a BitLicense - a business license for virtual currency activities issued by the New York Department of Financial Services (DFS), the same agency that oversees New York banks. The DFS did not respond to multiple requests for comment.
The BitLicense is a golden ticket to operate in New York, but it is difficult, expensive and rare to get one. Only 30 crypto companies currently hold a BitLicense. Only two new BitLicenses were issued in 2021, and only two have been issued so far in 2022.
According to New York-based attorney Max Dilendorf, whose law firm helps wallets, exchanges and decentralized protocols enter U.S. markets, the BitLicense has made New York the most difficult state in the country in which to do business as a crypto company.
The process, which DFS says takes 90 days, actually takes closer to three years on average - something Dilendorf and his customers find frustrating. The prospect of long waits and rising legal fees are enough to keep many crypto companies away from New York, but even for companies willing to pay up and be patient, additional requirements can make obtaining a BitLicense impossible for some.
"You have to have a compliance officer who has 15 years of experience," Dilendorf said. "If a company runs a [money transfer] operation in the States, they have to have two compliance officers, one of whom is responsible for the New York office. And it's really hard to find people who have that much experience."
"The whole thing is - I don't want to say it's a joke, but it is a joke," Dilendorf added.
David Yermack, chairman of the finance department at NYU Stern School of Business, has been teaching crypto since 2014. After learning about Bitcoin in 2011, Yermack has seen the crypto industry rise and fall in New York over the past decade.
"Some of the earliest [crypto] ventures like Charlie Shrem's BitInstant were in New York," Yermack said, referring to an early Bitcoin exchange that operated between 2011 and 2014. "But what you saw then was a very counterproductive overregulation of the industry."
"The infamous BitLicense was one of the least successful regulatory efforts I've ever seen. It just went too far," Yermack added. "It's a stifling piece of regulation that has driven a lot of people out of New York ... the burden it places on the people of New York is grotesque and completely unnecessary."
Crypto regulation in New York is the strictest in the U.S., especially when compared to more crypto-friendly states like Texas and Wyoming, which have acted quickly to create a regulatory atmosphere conducive to the crypto industry.
Adding to the hurdles for the crypto industry in New York, however, is the fact that DFS is not the only regulatory agency in the state with an opinion on crypto.
The New York State Attorney General's (NYAG) office, led by Letitia James, also has its eye on the crypto industry.
Under New York's strict blue sky laws - which give the attorney general's office broad powers to investigate and prosecute suspected securities fraud - James' office has taken action against major players in the crypto space, including stablecoin issuer Tether. Last October, the NYAG also ordered two crypto companies to cease doing business in New York.
Andres Munoz, a litigation partner at Romano Law who specializes in crypto, says the AG's aggressive stance against crypto companies is relatively new.
"It used to be that [NYAG] would defer to DFS because it was implementing BitLicense," Munoz said. "But in recent years, the attorney general has taken increasingly aggressive steps to regulate many of these cryptocurrency platforms."
"Essentially, the attorney general has put these virtual currency companies on notice that it's not enough to get a BitLicense," Munoz said.
The regulatory hurdles crypto companies face in New York are the result of state-level activity - meaning Eric Adams has little to no authority to change them.
"City government has nothing to do with it," Yermack said.
Andrew Rasiej, chair of the New York Tech Alliance and co-chair of Mayor Adams' tech transition committee, agreed.
"New York City has no control over rules or policies related to crypto. New York State obviously has a little more say, but as far as New York City is concerned, it really can't do much," Rasiej said.
"It can promote cryptocurrency by inviting companies and investors to recognize New York as a center for cryptocurrency development," Rasiej continued.
"But in terms of infrastructure, there's not much it can do."If you
can make it here, you can make it anywhereFor crypto founders willing to jump New York's hurdles, however, the stringent regulatory requirements offer companies some advantages, including access to New York's affluent population and a reputation for being compliant (i.e., safe) with regulators
.And because the process is so difficult, some of the competition is weeded out.
"The companies that had the resources and decided to make the effort to get [the BitLicense] have benefited," said Omid Malekan, who teaches blockchain technology at Columbia Business School.
"They can turn around and say to the market, their customers and other U.S. regulators, 'Hey, we have the hardest-to-get crypto license in America.'"
Thomas Hook, chief compliance officer of BitStamp USA, which has held a BitLicense since 2019, said the license - and the regulatory compliance that comes with it - is an "accolade" for his company.
"New York is a very demanding regulator," Hook added. "They have detailed requirements, which is very helpful. If you know the rules you're breaking, it's easier to comply and hold yourself accountable."
Hook, who began his career in the cybercrime division of the New York District Attorney's Office, said New York regulators need to be strict because New York is the center of the global financial market.
BitStamp's access to New York markets has given the company access to "a huge center of talent, customers and partners," according to Hook.
Malekan pointed out that New York-based crypto companies are raising huge amounts of money from investors, most of which will go toward hiring employees.
"There is a huge labor shortage in the crypto world. The opportunities are there. The wages are very high, very competitive," Malekan said. "Eric Adams is smart - the job of any mayor is to create an environment for economic growth with high-paying, high-quality jobs."
"There will be a turf war, and more and more cities and states will fight to get a piece of the pie," Malekan concluded.
For some, the grass is greener in MiamiMiami has emerged - at least domestically - as New York's biggest competitor as a hub for the crypto industry
.Miami Mayor Francis Suarez has made attracting crypto companies to Miami a priority of his administration, and he has had success in doing so. Last summer, Blockchain.com announced it would move its U.S. headquarters from New York City to Miami, promising to create 300 well-paying jobs.
Crypto companies such as eToro and FTX US have announced plans to expand their presence in Miami, with the latter company even acquiring the naming rights to the former American Airlines Arena.
In addition to comparatively lax regulation, Suarez pointed out that it's simply cheaper to do business in Florida than in New York - which he said is a big draw for some crypto companies.
"There's a cost of living difference that's about two to one right now," Suarez told NPR last December. "It's twice as expensive to live in New York as it is to live in Miami."
Suarez said the influx of crypto companies and other mainstream financial firms like Citadel Securities to Miami has brought $1.2 trillion in assets under management since 2019 - a huge boon to any city's economy, but especially Miami's, which before the COVID-19 pandemic was 60% service sector.
And Florida isn't the only state competing with New York for the crypto crown: Texas, Wyoming, Tennessee and other states - as well as Puerto Rico - have all taken steps to establish their own crypto hubs.
Beyond U.S. borders, countries such as Singapore and Malta have become crypto hotspots. In January, Hong Kong-based crypto exchange Xapo announced it would relinquish its BitLicense to focus on its international products.
But it's not just crypto companies that are in danger of losing New York: crypto investors are also leaving the state in droves to escape New York's high tax rates.
"If you're trading crypto assets, you're probably outperforming your peers, which means you're more concerned about things like income taxes - I think that's part of why we've seen this migration to places like Miami and Puerto Rico," Malekan said.
The City That Never SleepsWhile New York's regulatory requirements may be severe enough to deter some companies, the reality is that the city's crypto industry continues to grow despite those requirements
."New York is, and always has been, a major player in the crypto industry," said Jackie Zupsic, head of communications and co-chair of the crypto practice and fintech group at Tusk Strategies.
"It goes without saying that New York is the financial capital of the world," said Walter Hessert, head of strategy at Paxos, a New York-based crypto company that provides brokerage and settlement services for financial institutions.
Paxos was the first crypto company to be licensed by the NYDFS. Hessert said compliance is key for Paxos and is critical for Paxos' customers, many of whom are also regulated by the NYDFS.
Hessert said New York's history as a strict regulator has set a "gold standard" for financial regulation, including crypto.
"Regardless of what you think about BitLicense, I see New York continuing to thrive," Zupsic said. "Few places can match New York when it comes to the availability of talent and capital."
"Now New York just needs to figure out how to keep people there," Zupsic said.