How to get around Local Cryptocurrency Regulations Legally
You might find the regulatory burden in some states for cryptocurrency to be cumbersome to follow. In some cases, you see it as a nasty opportunity cost. There are times when the lowest price to get a certain cryptocurrency was forbidden due to local regulations. I myself had a keen interest in acquiring a particular cryptocurrency called "Polkadot", which did not become available in New York until midsummer of 2021. Nearly a year before that, I had a friend, Charlie at Cultivate Crypto, harp on about in 2020. During that time, Polkadot went from $5 per a coin to $15 before it was released on coinbase in 2021. In the meantime, exchanges like Kraken had it available to users for that entire period. Another important coin in the Polkadot ecosystem, Kusama, a critical coin to the security of the polkadot system, is not yet available to New York users.
Likewise, there are services like Celsius, provide yielding on array of assets such as Bitcoin, Ethereum with reasonablly high rates as 5% or 6%. Some other assets are able to yield as high as 13%. However, some regions are forbidden to use this application despite the benefits to ordinary folks. Besides the yield you gain on your assets, you can also borrow against them at rates as low as 1% while credit cards easily charge rates as high 23%. Stablecoins, cryptocurrencies pegged at the value of a dollar, have had yielding rates between 8% to 15% while banks offer an interest rate way below 0.9%. It is easy to look at things such as this and be frustrated.
Even myself who is both a New York resident and has an account with Celsius, you are extremely limited in what cryptocurrencies you are permitted to yield on. I can only store four assets on my Celsius account, BTC, ETH, CEL and USDC. In the meanwhile, a citizen from outside of my region is earning 13% on cryptocurrencies such as SNX and a plethora of other assets.
I believe there is a way to get around these kind of limitations. It completely depends on how much money you have on the table. For someone who is only buying $100 a week in crypto may not be able to cover the expenses to do this while someone who can easily spend north of $1000 a week can easily utilize this strategy.
What are the current limitations?
You might be asking what are the current limitations on buying cryptocurrencies in certain regions? The core reason is the state regulations actually forbid certain cryptocurrency exchanges and institutions providing services to residents and institutions in those respective states.
The obvious answer would be to move out of the state which forbids you from using these services. However, it generally isn't a financially feasible solution. Much of our source of incomes come from our jobs and businesses in the region we reside in. It might not be a viable solution. However, what if there is a way around this? There reasonable might be.
The second choice might be to create a legal corporation or LLC in another state. This might seem like a strange idea but it is actually very realistic. When you consider the Corporations and LLCs have a lot of the financial and legal rights of an ordinary american citizen. They are permitted to own cash, real estate, stocks, bonds and securities, just like an american citizen can. There are about 42 companies that own bitcoin on their balance sheets. Two of the largest holding of Bitcoin, Microstrategies and Tesla, are companies related to business intelligence and car manufacturing, absolutely nothing in relation to cryptocurrency. Michael Saylor's fame in the public eye has become noted due to his promotion of corporations to add Bitcoin to their Balance Sheets.
While most ordinary folks are what are called retail investors, they create accounts under their own names. However, Exchanges can sell to both retail investors and corporations. However, Corporations cannot have personal accounts, they need to open a corporate account.
Knowing the diverse selection of cryptocurrencies available on Kraken, it was a no brainer to ask Kraken about operating a corporate account on their exchange. I sent an email to Kraken if I could operate a corporate account from registered in another state and operate it while residing in New York. Here is the email exchange between Kraken and myself:
"Hello there,
Thank you for your interest in a Pro Business account with Kraken. This is Seth with the Pro Verification team.
You can certainly open an account for your entity, as long as it is registered and operates in a state other than New York. You will be able to manage the account from New York with no issues. We will also need to determine that the funding of the account is not coming from New York.
Please let me know if you have any further questions.
Thank you for choosing Kraken and have a great day.
Kind regards,
Seth
Kraken Client Engagement
www.kraken.com"
What do I need to do for my Corporate Account?
- The account must be registered with a corporation outside of New York
- The bank account tied to the corporation must be outside of New York
What are the Benefits and Drawbacks?
- Increased selection of Cryptocurrencies
- Increased number of cryptocurrency services
- There are additional expenses to create and maintain
- A different set of bureaucratic red tape to manage
- Money moves far slower