How to get around Local Cryptocurrency Regulations Legally

Disclaimer:  I am not a certified account, lawyer or financial advisor.  Everything I write is for educational purposes.  Before conducting any of the information here, be sure to consult an expert on the topics here before executing them.

    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?

    Reading an email like that must be a mind bomb, at least for me.  One of the key components of that email is "We will also need to determine that the funding of the account is not coming from New York."  This is actually important.  Tether had got in trouble from NY Attorney General over this, by having both their corporate bank accounts in New York and providing services to New York clients.  This is  extremely important to note.

    So there are necessary conditions for executing this plan:

1. The account must be registered with a corporation outside of New York
2. The bank account tied to the corporation must be outside of New York

You are also going to want to make sure you do not mix cryptocurrency wallets used personally and the one you use for your corporate account.

What are the Benefits and Drawbacks?

  There are clear benefits to someone trying to do this as well as drawbacks.

    In regards to benefits:

1. Increased selection of Cryptocurrencies
2. Increased number of cryptocurrency services

    Number 1 should be obvious.  Certain smart chains are not available at all in New York.  In some cases, they do eventually come to an exchange in New York but you end up missing ROI on that coin's value.  It is going to take more financial energy to acquire the same amount of coins you could have purchased.

    Number 2 isn't as obvious.  There are certain cryptocurrency services that aren't available to New Yorkers.  There is not a single exchange in New York that allows for leverage while exchanges like Kraken allow for leverage.  Another service available is on-exchange staking.  Some networks can require a minimum amount of crypto in order to stake it.  To stake your ethereum, you need 32 ETH.  As of writing, that is over $100,000.  That is a lot of money to lock up for the ordinary person.  Many of these exchanges allow for staking without any minimum needed.

    In regards to the drawback:

1. There are additional expenses to create and maintain
2. A different set of bureaucratic red tape to manage
3. Money moves far slower

    As a corporation, there are fees to set up an account.  An LLC for example can cost as much as $800 to set up depending on the state.  That doesn't include the additional ongoing annual fees to maintain an LLC or corporation.  Even your corporate bank account has a maintenance fee.  Usually this is waved with a minimum holding fee.  This fee is usually thousands of dollars.  SO you're going to either want to have a large holding of cryptocurrency in your portfolio or have a reasonably large income stream.

    You will have additional rules to comply to as well.  You will be filing two different tax reports for the IRS, one for yourself and one for your corporation.  There are also different legal rules to maintaining LLCs and corporations you should be familiar about.

    The final thing to notice is the speed at which transactions between accounts can occur.  Moving money from your bank account to an exchange can take 3 to 5 days.  This is due to the ACH system the current financial system uses.  Moving money from your personal account to your business account, then from your business account to the exchange, can take 6 to 10 days.  In a field such as crypto markets, where prices can move quickly in a short amount of time, that can be a major opportunity cost.

Can this rule apply to foreign exchanges?

     Short hand answer, why not?  We already know wealthy people use shell corporate accounts to store their wealth in places like the Cayman islands.  Since these corporations are registered in a country outside the united states, as long an exchange like Binance or FTX permits you to use a corporate account with their exchange, as long as the bank account and corporate account is outside the united states.

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