Despite a 50% uptick in BTC price, 2023 has been a brutal year for the crypto industry. This was especially true for the United States. Last year, the US was ranked the leader of the crypto-verse, with its massive crypto economy and forward-looking approach to technology and services. This year, US regulators target the sector with regulation by enforcement, making some leaders like Chamath Palihapitiya say ‘Crypto is dead in America.’ We wanted to take a state-by-state approach to understand where crypto businesses find refuge in the current market.
We aimed to look past the usual suspects among large states and uncover the jurisdictions truly excelling in attracting crypto businesses. The findings intrigued us: Colorado is a significant epicenter for crypto activity, accounting for 33% of all U.S. crypto businesses registered with FinCEN. That is more crypto business activity than most world countries. Its status as an industry linchpin is becoming indisputable. Similarly, but at a lower scale, Wyoming boasts an impressive concentration of crypto firms.
Methodology for U.S. States Crypto Business Index
Data Collection and Sources
Our primary data source was the Financial Crimes Enforcement Network (FinCEN). This U.S. government agency monitors financial transactions to combat money laundering and other financial crimes. As of September 1, 2023, 28,040 companies are registered with FinCEN as money transmitters.
While FinCEN provides an invaluable list of registered Money Service Businesses (MSBs) in the United States, it notably omits to include unique public identifiers such as websites or contact information. This contrasts with similar regulatory bodies in other countries, like Canada’s FINTRAC, where such identifiers are standard practice. To overcome this, we employed AI categorization to make an initial distinction of potentially crypto-related companies from the FinCEN list. This initial distinction was cross-referenced with other databases like the global VASP database, crypto banking, and publicly available information databases to identify crypto companies. A final manual check was conducted, where we examined the legal name of each company and matched it with information from their websites to confirm whether they were crypto-related.
This rigorous approach yielded a list of 1,080 companies with medium to high confidence levels related to the crypto space. It’s worth noting that this list includes a range of companies, from large corporations to solopreneurs, that have an MSB license. Around 10% of these companies are no longer operational, and approximately 5% have been flagged as spam by various platforms.
The list was cross-validated with pre-existing industry rankings to verify the reliability of our findings. We consulted Bloomberg’s legal data to understand the crypto regulatory landscape by state. Data on state populations was sourced from Wikipedia.
The Crypto Viability Index was calculated by normalizing the following variables to a range between 0 and 1:
- Number of companies registered in each state according to the FinCEN database
- Number of companies with an MSB license to operate in that state
- Number of crypto companies vs. total number of companies registered with FinCEN
- Whether the state has a crypto sandbox
- State requirements for MSB registration
The variables were weighted to derive the final index score for each state. The index scores have been normalized, with the highest score set at 1 and the lowest at 0, to facilitate straightforward comparisons.
Geographical Distribution of Crypto MSB Companies Registered with FinCEN
What is pushing Colorado’s Dominance
The state-wise distribution of Crypto Money Services Businesses (MSBs) registered with FinCEN presents intriguing insights into the crypto industry landscape in the United States. A disproportionate number of companies, approximately 33%, are based in Colorado (CO). This is followed by a 13.44% share for foreign companies and a 9.58% share for those headquartered in California (CA). Florida (FL) and Delaware (DE) are the next tiers, with 5.43% and 4.51%, respectively. Surprisingly, traditional financial hubs like New York (NY) account for only 4.05% of registered MSBs. The overwhelming number of Money Transmitters based in Colorado is an unexpected but noteworthy observation. Despite being a technology and innovation hub, California’s share is less than one-third of Colorado’s. So what’s going on? Colorado has been a front-runner in creating a crypto-friendly legal framework, which may explain the state’s magnetic pull for MSBs. The state offers the ‘Digital Token Act’ that provides certain exemptions from state securities laws for cryptocurrencies, potentially making it easier for blockchain and crypto-focused businesses to operate.
The “Colorado Phenomenon” and the man behind it
Colorado’s meteoric rise can be attributed to the efforts of one visionary individual, Governor Jared Polis, who significantly altered the city’s crypto landscape. He implemented policies to streamline business operations, provided tax incentives for crypto firms, and fostered a welcoming environment for blockchain innovation. The ‘Digital Token Act’ and other state initiatives have made Colorado a magnet for crypto and blockchain ventures. And the results are clear. Colorado is a massive global hub that now trumps Palo Alto, New York, and many European and Asian countries.
The ‘Crypto Super Bowl’ is happening in Colorado.
A global event, dubbed the “Super Bowl of Crypto,” occurs in Denver, Colorado. This year, the event has seen record-breaking attendance, with over 30,000 participants from 110 countries. Originally a competition for blockchain developers, the event now attracts a diverse crowd, including those who are “crypto-curious.” The event continues to host a competition with $2 million in prizes for innovative blockchain projects. One example includes a project aiming to revolutionize academic publishing by removing intermediary publishers.
State-by-State Analysis of Crypto MSB Licensing: Who’s Leading and Lagging in Regulatory Adoption?
The unlikely leaders in U.S. crypto space: What states go above and beyond?
The distribution of Money Services Business (MSB) licenses among crypto companies varies significantly from state to state, highlighting the disparities in how each jurisdiction approaches the burgeoning crypto sector. Notably, Wyoming and Colorado stand out as the frontrunners, with crypto MSBs making up an impressive 20.23% and 19.94% of all MSB-licensed companies in these states, respectively. This suggests that these states offer a regulatory environment conducive to crypto businesses, attracting more companies in this sector than traditional MSBs.
Conversely, states like Mississippi, South Carolina, and Louisiana have less than 1% of their total MSB licenses allocated to crypto companies, indicating a less favorable or perhaps more conservative regulatory landscape for crypto-related activities. It’s also noteworthy that several states like Alaska, Idaho, Iowa, and New Hampshire report a zero percentage, pointing to regulatory hurdles or a lack of industry interest in these regions.
States like Delaware and Hawaii also pull well above their weight, with crypto MSBs accounting for 13.42% and 13.33% of all MSBs, respectively. This high proportion may be influenced by specific state-level policies, tax advantages, or strategic positioning that make them attractive for crypto-focused businesses. Meanwhile, populous states like California and Florida show a more moderate ratio at 1.98% and 4.71%, respectively, likely reflecting a more diverse financial services landscape.
However, it’s not just the traditional tech or financial hubs embracing crypto. States like Maine and Nevada have ratios above the national average, at 5.56% and 6.18%, respectively. These figures suggest that the impact of crypto companies is being felt beyond the usual suspects, making inroads into states that are not typically considered financial or technological powerhouses.
Aurora, not New York. Boulder, not Miami.
The geography of the crypto business is experiencing a fascinating shift, as evidenced by the city-wise distribution of Crypto MSBs. Denver retains a robust lead, housing 24% of legal entities in the US! However, two cities in Colorado—Aurora and Colorado Springs—have surprisingly outperformed traditional tech and finance hubs like New York and Miami. With 51 companies, Aurora accounts for 5.6% of the total MSB crypto companies in the US, while Colorado Springs, with 23 companies, captures 2.5%. In contrast, New York and Miami stand at 3.7% and 2.0%, respectively. A favorable regulatory environment, lower operational costs and availability of skilled talent contributed to this surprising trend for places like Colorado Springs. The presence of military installations and research centers could also be driving cybersecurity expertise, a valued skill set in the crypto industry.
Where do companies choose to get an MSB license?
The first two categories involve multiple states and account for 55.89% and 7.00%, respectively of the total Money Service Business (MSB) activities. This suggests that most crypto companies register with FinCEN for a broad scope of operations across numerous states. Why is that?
Well, imagine you’re a company selling a financial product. Registering in just one state means you’re limited to selling to customers there. But if you register country-wide, you can sell to anyone in any state—like having a VIP pass at a music festival that lets you go anywhere!
Companies with MSB licenses in the State
While these numbers might be expected given these states’ populous nature and business-friendly climates, the real surprises lie at the opposite end of the spectrum. New York, a state often considered a financial powerhouse, sits just above Puerto Rico and below Hawaii, with 716 registered crypto MSBs. This relatively low standing for New York could likely be attributed to its stringent regulatory environment, which appears less inviting for crypto companies than other jurisdictions.
Categorization of Money Service Businesses (MSBs) in the U.S. Crypto Industry
Colorado’s top categories are Crypto Exchanges and Cryptocurrencies. But Colorado welcomes all crypto companies, from DeFi and Mining to specialized services like Crypto Banking.
Interestingly, Florida and Texas have a high concentration of ATM services at 20 and 13 companies, respectively. States like Delaware, New York, and New Jersey seem to significantly focus on Exchanges, indicating possible hubs for crypto trading activities.
Unsurprisingly, New York stands out for its focus on ‘Asset Management & Investment’, with seven companies in this category. At the same time, Wyoming appears to have a well-rounded representation across different categories, including ‘Crypto Banking’, which is less common in other states.
Colorado and California (CA) are leading in emerging categories like ‘Metaverse & NFT’ and ‘DeFi’.
This analysis offers a unique data-driven snapshot of how states are positioning themselves in the rapidly evolving crypto space, either embracing the sector with open arms or proceeding more cautiously. Each state’s ratio indicates how progressive or conservative their regulatory stance is toward the crypto industry, providing valuable insights for potential entrants evaluating market viability. You can download the database or let us know if we missed anything in the comments!