New York City may dominate traditional finance, but Miami will become the crypto capital for the next generation of financiers. Silicon Valley and Los Angeles want to compete, but there is a simple reason why states like California and New York will play second fiddle in the crypto long game.
Taxes. Florida has no state income tax, while California and New York have some of the highest state income taxes in the United States. Residents of New York City even pay an additional ~4% of income tax to the city. A new industry with startup businesses needs every economic advantage it can find, so crypto entrepreneurs would be wise to first set up shop in Florida.
We are still in the early days of crypto. It has only been four years since the market saw its first wave of mass interest beyond crypto enthusiasts and true believers. Now institutional players have entered the arena and stakeholders like Crypto.com and FTX have literally put their names on stadiums in Los Angeles and Miami.
Beyond taxes, Miami will attract these players and other crypto market participants to its sandy shores for a number of other compelling reasons: crypto regulations, an existing and growing finance presence, proximity to Latin America, cost of living, and a wealth of cultural offerings and beaches.
Florida is still figuring out its regulatory regime, with the Florida Office of Financial Regulation requiring certain crypto businesses to apply for money services business licenses as of Jan. 1, 2022. There are efforts underway in the Florida legislature to clarify the requirements and make them more commercially friendly.
New York’s process for obtaining a full BitLicense is considered one of the toughest in the country and has long been unpopular with blockchain startups. Among the complaints: steep paperwork requirements and lengthy approval times.
In addition to paperwork, the costs create potential barriers to entry for smaller crypto startups:
The process of acquiring a BitLicense can be daunting for new applicants. It is quite difficult and expensive, with an initial fee of $5000. License holders and applicants say that time allocation, legal fees, and other costs can drive that amount up to $100,000, depending on the size of the crypto entity.
Florida, and Miami in particular, has the opportunity to be the anti-New York by implementing much less onerous requirements while still safeguarding against the risks inherent to cryptocurrency, such as money laundering.
Similar to Florida, California has largely punted on specific regulations pertaining to crypto. Companies like Coinbase and Robinhood are based there and thriving. The state recently set up a new Office of Financial Technology and Innovation and hired a consumer finance protection lawyer, Christina Tereault, to run it. How their regulatory oversight shakes out could determine whether Florida will maintain a regulatory advantage in the space.
Miami’s Existing and Growing Finance Presence
California and New York may have some of the current big players in the crypto space, but do not sleep on Miami. The Brickell neighborhood in particular is referred to by many as the “Wall Street of the South.” It has long been home to traditional finance firms who want gateway access to Latin American clients. Asset management businesses have thrived.
The finance presence is not limited to Brickell either. A number of well-known finance firms have flocked to Downtown Miami, including Apollo Global Management, Blackstone, and Point72. Other firms, such as Virtu have found new homes in surrounding areas like Palm Beach.
In terms of crypto, FTX US, eToro and Bit Digital have announced plans to expand in Miami. MoonPay and Orca Capital already have office space. Blockchain.com decided to move its U.S. headquarters from New York City to Miami. As the Blockchain.com CEO Peter Smith said:
Miami was an easy choice for us. It's the gateway to Latin America. It's on the East Coast time zone. And more importantly, it's probably the most excited city in the world about crypto right now.
Miami’s Proximity to Latin America
Proximity to Latin America is important in the world of crypto. Citizens of developing countries and unstable economies love the decentralized nature of crypto because it gives them what their countries often cannot - some semblance of financial security. It is no wonder why crypto adoption is soaring in these countries.
Four countries of the 2021 list of top 20 crypto adopters are based in Latin America: Venezuela, Argentina, Colombia, and Brazil. Miami firms already have strong financial connections in each of these jurisdictions. Their proximity also gives them an advantage over other competing U.S. cities.
Cost of Living in Miami
There is a cost of living differential, which is about two-to-one right now. It's twice as expensive to live in New York as it is in Miami. - Miami Mayor Francis Suarez
Mayor Suarez also highlighted that Miami had reduced its real estate taxes “to the second lowest level since the 1960s”, the city has more room for development than New York City, and S&P Global Ratings recently upgraded some of its credit ratings on Miami bonds.
Cultural Offerings and the Beaches
Miami is a vibrant city. It has one of the best food scenes in America, energetic nightlife, and professional sports (even Formula 1). The city loves the arts - just ask the regulars who attend Art Basel each year.
If the new age of crypto finance bros are anything like the old guard, they will need a place to live, work, and play. Miami offers it all. Including beaches, New York.
A City Crazy About Crypto
Mayor Suarez said it himself: “Crypto is incredibly important to the future of the city, and to how we are positioning ourselves right now. We really have created the epicenter for crypto.”
New York City will not go down without a fight though. On election day, Mayor Eric Adams tweeted that “NYC is going to be the center of the cryptocurrency industry and other fast-growing, innovative industries. Just wait!” The city has even hosted panels like “Making New York the Crypto Capital.”
New York also has two major advantages over crypto-crazed Miami. First, almost every traditional finance firm is getting into crypto, including banks, broker dealers, and buy-side clients. Second, New York has a stronger technology ecosystem with some of the best schools in the country (Columbia, NYU, Cornell Tech) and a strong talent pool. Big Tech firms have bought up thousands of square feet of NYC office space even amidst the pandemic. California arguably has the same existing technology ecosystem advantage as well.
Nevertheless, Miami has more to offer for the crypto industry’s future. From the taxes and commercially friendly regulatory environment, to the city’s lower cost of living and proximity to Latin America, it has a unique mix of advantages that New York and California cannot offer. Add to the mix Miami’s overall energy and enthusiasm for crypto, and you have yourself an entrepreneurial playground. And the future crypto capital of America, if not the world.