A new wave of wealthy investors is moving to the island. Locals are greeting them with excitement — and suspicion.
A report by Nitasha Tiku for The Washington Post.
Gustavo Diaz Skoff met the crypto utopians in 2018 amid the devastation of Hurricane Maria. Just six months out of college, he was drawn to their innovative vision for rebuilding this battered island.
For a while, Skoff worked with a cryptocurrency investor who made vague promises of donating $1 billion. But only a fraction of the cash ever materialized, and Skoff increasingly heard: “ ‘Vendepatria. You’re selling your country, you’re selling your island.’ ”
Today, Skoff, 26, is a skeptical observer of the island’s complicated relationship with the flood of newcomers seeking to build a crypto paradise here. With generous tax breaks drawing wealthy day traders, hedge fund managers and pandemic remote workers along with crypto millionaires, a debate is raging around the question of who benefits from the booming $3 trillion industry.
Home prices are soaring in parts of San Juan, the island’s graceful seaside capital, and applications nearly tripled in 2021 under a law that lets newcomers profit from crypto and other investments tax-free. Amid allegations that the beneficiaries are failing to create jobs or otherwise help the local community, members of Puerto Rico’s leftist independence party are pressing for the tax break to be repealed.
In response, the crowd once derided as “crypto colonizers” is trying to rebrand the industry as more inclusive, empowering and communal, part of a larger campaign that stretches to Silicon Valley. In Twitter threads and before members of Congress, insiders argue that blockchain, the information-storing technology that powers the crypto market, holds the promise of a more democratic Internet, known as Web3, where users own their content rather than ceding control and profits to Big Tech.
In Puerto Rico, evangelists say they hope to prove crypto’s ability to create a path to prosperity. Last month, hundreds of people attended “Metaverso,” a one-day summit at the Museo de Arte de Puerto Rico dedicated to the “technological and cultural implications” of digital collectibles known as non-fungible tokens, or NFTs. Weekly CryptoCurious events in San Juan draw steady crowds. Local workshops teach kids how to “mint your first NFT.”
Many Puerto Ricans are captivated. On a recent Wednesday in Condado, a touristy neighborhood on the city’s northern coast, the 22-year-old who makes $8 an hour managing a row of e-scooter rentals boasted of owning $2,000 in Ether, a fast-growing asset that some project could unseat bitcoin as the top cryptocurrency.
These days, “even people like my grandpa, my great-aunt — she understands the importance of bitcoin,” said Pedro Cruz, 28, co-founder of LooperVR, a start-up building music concerts in virtual reality for Latino audiences. “They want to get involved.”
Both the excitement and suspicion around crypto were on display at a recent launch party for Based, a new magazine created by Skoff and intended to promote Puerto Rico’s homegrown entrepreneurs. Local company founders mingled with Bay Area transplants and politicians as a four-piece band switched from salsa to baladas in the courtyard of a 19th-century convent-turned-coworking space.
Puerto Rican software developers Ernesto Ojeda and Steven Rivera, both 25, have bought into the vision of crypto as an economically transformative technology. While sipping champagne, they touted Neftify and its ability to help people in Puerto Rico, Venezuela and the Philippines qualify for “play-to-earn” blockchain games, an avenue for acquiring digital investments. Without such games, Ojedo said, people from poorer countries risk “being left out of this entire economy.”
Across the courtyard, Jose Domingo Soto Rivera, 23, executive director of ACOMERPR, a food security nonprofit that also delivers food to the elderly, ranked among the unconvinced. He said he has yet to receive a donation from the crypto wealthy, who are required under the terms of the tax break to make contributions to local charities.
Skoff stood near the exit, thanking guests as the party wound down. While he appreciates the possibilities of blockchain technology, Skoff said he remains wary of mainlanders bringing a gold-rush mentality to crypto.
“Promoting something blindly,” he said, “can have dangerous repercussions.”
Puerto Rico’s turn as a tax haven for the rich began in 2012. For decades, the U.S. commonwealth had relied on tax incentives as a growth strategy, luring industries such as manufacturing and pharmaceuticals. When those companies closed, officials decided to try something different: They would attract wealthy people in service sectors such as finance and law, who would buy homes, open bank accounts, hire local residents and otherwise boost the island’s faded economy.
The resulting legislation, known as Act 22, offers people who live on the island at least 183 days a year the promise of tax-free profits on their investments, which are otherwise subject to federal taxes of up to 37 percent. People who had lived on the island in the past 15 years weren’t eligible, meaning most native Puerto Ricans could not benefit.
Then, in 2017, disaster struck. Months after the island declared bankruptcy — with a large portion of the debt owed to U.S. hedge funds — Hurricane Maria brought catastrophic damage, killing nearly 3,000 people and leaving most of its 3.4 million residents without power, running water or cellphone service. At the same time, a staggering surge in the crypto markets brought an influx of newly flush crypto investors to the island.
Led by investor Brock Pierce, chairman of the nonprofit Bitcoin Foundation, the first wave of settlers promised to transform Puerto Rico into a crypto utopia by potentially building a new city run on the blockchain.
But they offered few concrete details. At the time, blockchain had few viable uses beyond virtual currency, which early adopters, many of whom were libertarians, saw as a tool to circumvent taxes and other forms of government oversight. The 2017 boom was driven by a flood of initial coin offerings, or ICOs, in which investors pumped money into often speculative projects in exchange for tokens. In Puerto Rico, some people quickly sized up the crypto settlers, fat on get-rich-quick schemes, as exploiting the beleaguered island to write their own rules.
Local ire focused in particular on Pierce, a former child actor best known for playing Gordon in “The Mighty Ducks.” Pierce is a polarizing figure even within the bitcoin community. He co-founded a digital video company with Marc Collins-Rector, who was later convicted of child sex abuse. (Pierce was named in a lawsuit against Collins-Rector, but two of the plaintiffs dropped the claims against Pierce, and Pierce settled with a third plaintiff for $21,000, according to court documents. Pierce said it was the cost of the plaintiff’s lawyer’s fees.) When Pierce was first elected to the board of the Bitcoin Foundation in 2014, at least 10 members of the group resigned. In Puerto Rico, he sought media attention for his plans to help the island and pledged to donate $1 billion.
When he met Pierce, Skoff was helping with hurricane recovery, driving around the island in a pickup truck to collect information about local needs. He was also working with satellite companies to help set up an electronic benefits transfer (EBT) system so communities cut off by the storm could access financial assistance.
Skoff was intrigued by proposals from Pierce and his friends to use an EBT system to distribute universal basic income and deploy blockchain to set up a decentralized energy grid. Community leaders were already using solar energy to restore power to hundreds of homes. Skoff figured that blockchain, which stores information across a network of computers rather than in a central database, could help that effort scale up.
After a conference organized by Pierce led to protests from locals, who attended a scheduled “day of listening” and asked the crypto transplants to leave, Skoff offered to connect Pierce’s team with local nonprofits and advise them on community outreach. “But afterwards it just stopped. There wasn’t continuity. There wasn’t consistency,” Skoff said.
In an interview with The Washington Post, Pierce claimed he donated $8.9 million in 2021 to organizations on the island. But the billion-dollar pledge was not intended just for Puerto Rico, Pierce said from his home at a Ritz-Carlton-owned private enclave in Dorado, outside San Juan. “These were loose ideas, nothing of which was concrete or well thought out,” he said.
When the crypto market crashed in 2018, some utopians hunkered down for the “crypto winter,” while others left the island.
“A lot of people just disappeared,” said Cruz, the VR start-up founder, who ran a blockchain hackathon for Pierce. “The money dried up because everyone was losing money at the same time.”
‘Act 22 = Racismo’
The covid-19 pandemic brought a crypto thaw in Puerto Rico. Stuck in their homes, out of work and looking for ways to make money, some islanders turned to social media and found Spanish-language instructors explaining how to invest. NFTs became popular as tokens inside blockchain games or as online avatars — like skins in the video game “Fortnite” — making crypto concepts more accessible.
The pandemic and Puerto Rico’s reputation as a crypto hub of sorts also attracted a new type of crypto holder to the tax benefits, including developers and dabblers. Frances Haugen, the Facebook whistleblower, moved to the island in part to join her “crypto friends,” she told the New York Times in October. On the encrypted messaging app Signal, Haugen told The Post that all of her friends hold cryptocurrency and that some are entrepreneurs.
Meanwhile, the value of crypto began to rise again, and some local crypto holders saw their net worth multiply. Taxi driver Jose Santana Torres said he was able to pay $100,000 in cash for his ocean-view apartment in 2021thanks to the burgeoning value of $12,000 in bitcoin he accepted from fares in 2017 and 2018. Now he advises other taxi drivers to accept all cryptocurrencies.
Just as resistance to the crypto transplants was dying down, however, a backlash began to foment against their tax incentives.
Prominent Democrats in Congress — including New York Sen. Charles E. Schumer and Rep. Alexandria Ocasio-Cortez — have called for more oversight of potential tax evasion. The IRS estimated that Act 22 was costing the federal government hundreds of millions of dollars a year in lost tax revenue and announced a campaign to audit Act 22 beneficiaries.
Local officials started taking aim at the incentives as well, citing an analysis that tax beneficiaries had created just 4,400 new jobs between 2015 and 2019.
María de Lourdes Santiago Negrón, a member of the Puerto Rican Senate from the island’s left-wing independence party, has filed legislation to repeal Act 22, an effort that went viral after YouTube star Logan Paul announced a year ago that he was moving to the island to avoid California taxes.
Most of the spending by Act 22 beneficiaries had been plowed into luxury real estate, to the tune of $1.3 billion according to the analysis, helping to drive up housing prices.
Real estate costs are rising in neighborhoods across San Juan, not just in touristy areas such as Condado, but also in hipster communities such as Ocean Park, where graffiti reading “Act 22 = Racismo” is painted across the street from a commune established by a San Francisco start-up founder. In a private Facebook group for sublets and housing, fights increasingly break out over expensive rentals. “Puerto ricans don’t need your cash nor your bitcoins,” one person wrote under a post about a one-bedroom apartment renting for $1,900.
Though repeal of Act 22 is unlikely, lawmakers are considering amendments to it, said Sen. Juan Zaragoza, a member of the centrist Partido Popular Democrático party who chairs the Senate Finance Committee.
Some people want to “kick them out of the island, and repeal the law retroactively,” Zaragoza said. “There’s a high level of hate against these people.”
The charm offensive
After lying low for a few years, the crypto set is now re-emerging. But instead of talking about rebuilding the island, they are emphasizing the potential benefit of crypto to locals and offering to teach Puerto Ricans about blockchain as a means of economic liberation.
After launching in June, the Puerto Rico Blockchain Trade Association (PRBTA) debuted a free four-week introductory workshop called CryptoCurious to explain concepts such as NFTs. In December, the inaugural Puerto Rico Blockchain Week featured talks on financial inclusion and crypto’s impact on the everyday lives of Puerto Ricans, including panelist Giomar Alvira, an Uber driver who started trading cryptocurrency last year after he drove PRBTA executive director Keiko Yoshino to a CryptoCurious session.
Yoshino, a former staffer for D.C. Mayor Muriel E. Bowser who moved to the island in March after working there remotely for months, said crypto used to be a taboo subject for legislators. “We’re not only trying to provide them political cover — as I would say in Washington — but building community allows them to be more adventurous, to be more confident about having a position,” Yoshino said over coffee at La Concha Renaissance hotel in Condado, near a beachfront lined with posh hotels and apartment towers.
Next on the Blockchain Week schedule was the NFT summit, Metaverso, featuring $27,500 in prizes for local hackers. An NFT auction raised $268,827 for two local nonprofits, along with the Boys & Girls Clubs of Puerto Rico, to develop a free curriculum about NFTs and blockchain.
“There are infinite seats at this table,” said Metaverso co-host Amanda Cassatt, founder and chief executive of the Web3 marketing company Serotonin, who moved in Puerto Rico in 2019 in part for the tax breaks. By learning about this technology, young people in Puerto Rico can “bootstrap their own inclusion,” said Cassatt, who got into Ethereum early through ConsenSys, the company behind the crypto wallet Metamask.
But the Blockchain Week conferences also catered to digital nomads coming for the tax incentives. Yoshino’s group held a one-day event called HODL HERE, slang for holding onto cryptocurrency rather than selling, a winking nod to entice the newly rich to move to the island. The speaker of Puerto Rico’s House of Representatives, Rafael Hernández Montañez, who recently proposed a bill promoting government use of blockchain, spoke at HODL HERE. There was a panel on tax incentives.
And Pierce is still exerting his influence, including delivering a fireside chat at a separate conference during Blockchain Week. In January, Puerto Rican authorities said they would investigate whether Pierce violated his status as a resident by launching a campaign to run for a U.S. Senate seat in Vermont.
But Cruz, the founder of the VR start-up, who has run hackathons for Pierce and at Metaverso, said the difference this time around is that tax beneficiaries are pointing to developers like himself, who grew up in Puerto Rico and built their own crypto community, rather than centering mainlanders.
Still, some success stories shared by the Act 22 crowd suggest a gold rush more than a democratized Internet. Julio Domenech, a 24-year-old self-made crypto millionaire, teaches barbers and housewives how to become “six-figure earners” through crypto. He charges $1,000 for a full course, in payment plans of $333, he said, showing off screenshots from his Instagram stories of his first student who became a millionaire.
Other crypto investors point to locals who have found opportunity through chance encounters. Michael Terpin, who owns a blockchain consultancy and came to Puerto Rico in 2016, said that he pays his physical trainer in Ether. “I’m sure some people still pay her in cash to pay her taxes and pay her bills or whatever,” he said.
Some locals who found employment through crypto connections can’t escape its stigma. Giselle, 24, a Puerto Rican who spoke on the condition of being identified by her middle name because of widespread vitriol against tax beneficiaries, said she got plugged in to the crypto scene while working at a Chinese restaurant and hearing a local tax attorney talk about the industry. She began attending Crypto Monday happy hours and got a job at a digital marketing company that gets benefits from a companion tax break for export businesses.
Giselle said she doesn’t talk about her job with her friends, who see the tax incentives as driving an “Airbnb real estate culture,” transforming homes into vacation pit stops for the wealthy.
“Deep down, I am kind of with them. But at the same time, an opportunity is an opportunity,” she said. “I am looking out for myself.”