US AML/KYC regulations drive market liquidity to more crypto-friendly jurisdictions

The US federal government is intensifying its regulatory efforts in the cryptocurrency space, implementing stricter Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulations. While designed to prevent illicit activities, most of these regulations have increased market liquidity and innovation toward more crypto-friendly jurisdictions.

The United States has taken a leading role in advancing technology and embracing cryptocurrencies; cities such as California, San Francisco, New York City, and Miami have emerged as centers for crypto activities, where gatherings and conventions unite specialists, investors, and creative minds from various corners of the globe. 

However, navigating the regulatory environment in the United States can be quite complex due to the rules established by each state. Businesses venturing into the cryptocurrency industry often encounter this hurdle. 

Regulatory burden may cause liquidity to shift away from US venues

Regulatory demands are increasing for cryptocurrency exchanges as US government agencies enforce AML and KYC rules, resulting in higher compliance expenses, for companies based in the nation and prompting a few to look for friendlier regulatory settings elsewhere. 

While a majority believe that the new regulations have impacted offshore exchanges, it is clear that onshore exchanges face the highest regulatory pressure. Consequently, offshore exchanges have seen increased demand, with many welcoming offshore access.

In the last quarter, trading on offshore native platforms was higher than the combined trading volumes of developed and new onshore regulated exchanges. 

According to a report by Acuiti, offshore exchange demand rose to 49%, while onshore exchange demand lagged slightly behind at 41%. DeFi’s demand was 8%, while new onshore exchanges had a mere 3% demand pool. 

Crypto-friendly jurisdictions are rising in prominence

Nations such as Switzerland, Malta, and El Salvador have become known as hubs for crypto advancement. They offer more flexible regulations that support blockchain technology and digital finance growth than strict regulations like those in the US. 

These countries are attracting liquidity with tax benefits and smoother licensing procedures, alongside government-supported blockchain projects. 

For instance, Singapore has earned its reputation as a global financial hub, and its approach to cryptocurrency is friendly. The Monetary Authority of Singapore (MAS) has created a clear regulatory framework that allows institutional and retail investors to trade cryptocurrencies safely. This has made Singapore a prime location for crypto startups and blockchain research.