In balmy Puerto Rico, diehards shrug off the crypto winter

Kari Paul reports for The Guardian in San Juan, Puerto Rico, with photographs by Erika P Rodríguez, “In balmy Puerto Rico, diehards shrug off the crypto winter: ‘We’re not worried.’” Blockchain aficionados have long flocked to the island for its favorable tax laws. But as the industry wobbles, residents are pushing back in view of uncontrolled inflation and escalating housing crisis. Many Puerto Ricans trying to break into the business are at a disadvantage without the benefits their neighbors enjoy from Act 22—which only applies to people who have relocated to the island recently.

On a humid December evening in Puerto Rico, more than 100 cryptocurrency and blockchain aficionados gathered at a mansion within a gated, jungle-like enclave of San Juan. A local band played softly while waiters served hors d’oeuvres to attendees who paid as much as $3,000 to attend CoinAgenda Caribbean, a three-day conference promising a VIP experience of networking opportunities and fireside chats about the future of the industry.

The crypto crowd arrived in chartered buses to the party, where they sipped on cocktails from an open bar around a pristine white pool, frogs singing in the trees surrounding the property owned by Michael Terpin, founder of CoinAgenda. A private chef from Lyon, France, provided a five-course meal – a fusion of French dishes and Puerto Rican staples like a pig roast and rice and beans.

Conversation meandered through typical talking points – new token launches, an app for ordering private jets, and musings on what it’s like to relocate to Puerto Rico, home to one of the world’s most active crypto communities thanks to tax-friendly incentives. But one topic seemed far from everyone’s mind: FTX, the crypto exchange that spectacularly collapsed in November, and its now jailed founder Sam Bankman-Fried, who in the last few weeks alone lost his company, was arrested in the Bahamas on charges of fraud and money laundering, and sparked perhaps the greatest reckoning yet over the industry’s survival.

From the beaches of Puerto Rico, the “crypto winter” is looking balmy. While lawmakers and industry analysts say the FTX debacle has exposed serious flaws at the heart of crypto’s promise, many here aren’t giving up. In fact, they’re doubling down.

[. . .] The CoinAgenda Caribbean conference took place as part of the second annual Puerto Rico Blockchain Week, a five-day series of events exploring blockchain technology, crypto, and its impact on the island. [. . .] One crypto entrepreneur sheepishly admitted he had lost $70,000 in the FTX collapse, but said he planned to continue with business as usual. Another said she worked in real estate on the island and had several clients seeking to sell their homes to finance more crypto purchases while prices are low. [. . .]

Terpin acknowledged that attendance at CoinAgenda was slightly down this year, as is common when bitcoin’s price falls – but said that at times like these, there was “higher-quality attendance”. Terpin says he came to the island in 2016 on the verge of a continuing influx of crypto entrepreneurs fueled by generous tax breaks on capital gains. In the years since, the community has grown exponentially, with hundreds of newcomers taking advantage of the laws.

As the dinner party drew to a close, he raised a toast to the growing blockchain community, citing the success of Pantera, a crypto firm founded by the former Goldman Sachs bond trader Dan Morehead that has operations on the island and raised $1.6bn this year.

“They say we aren’t bringing money to Puerto Rico – how about $1.6bn?” Terpin said, alluding to a longstanding criticism: that wealthy outsiders are having a negative effect on Puerto Ricans by driving up living costs, and that local entrepreneurs have not benefited equally from the crypto boom.

“The best thing that could happen is that the crash makes them leave,” said Marina Reyes Franco, an art curator whose recent projects center on the cultural impact of the “visitor economy” on the island. She said that, although she had grown up in San Juan, she had struggled to find affordable housing in recent years. “At the end of the day, this is about a new era of colonialism and laws that only benefit the elite.”

[. . .]The race to turn Puerto Rico into the “Silicon Valley of the Caribbean” has been under way for years, as the US territory struggled with debt crises and sought to make itself attractive to outside capital. The effort escalated in 2012 with passage of the Individual Investors Act (Act 22), a measure offering high-net-worth individuals and investors who relocated to Puerto Rico a chance to evade capital gains taxes, which can reach 20% in the mainland US. The tax decree, coupled with a bull run in crypto prices between 2017 and 2021 and a real-estate market reeling from Hurricane Maria in 2017, made it an ideal locale for entrepreneurs and investors.

Proponents of the tax breaks argue that attracting investment to the island will inject funds into the ailing economy and stimulate development. But many who live here question that. They say the influx of wealth has fueled rising rents and evictions in San Juan, where housing prices increased by 22% between 2018 and 2021 as beneficiaries of the tax breaks bought up properties. Research by the territory’s Department of Economic Development and Commerce (DDEC) found beneficiaries of the law spent an estimated $1.3bn on local real estate between 2015 and 2019.

Critics say the economic benefits of Act 22 aren’t clearcut. Analysis published by the Center for Investigative Journalism in June 2021 found recipients of the incentive had “barely achieved any job creation or economic impact”. The DDEC report found that tax beneficiaries had created only 4,400 new jobs between 2015 and 2019, fewer than three jobs per beneficiary.

The escalating housing crisis, coupled with high-profile controversies involving some of the biggest names in crypto, has stoked anger throughout the US territory. A short documentary on the topic released this year by Bad Bunny, the Puerto Rican reggaeton superstar, brought the issue further into the mainstream. Following the collapse of FTX and with bitcoin’s price hitting two-year lows, many locals are hopeful the bear market will push some of the increasingly unwelcome newcomers out.

“The end goal of these policies is rooted on the idea that nothing is happening in Puerto Rico – that it’s just a sandbox to experiment and build in,” said Jorge Vega Matos, a climate tech executive native to the island who splits his time between Puerto Rico and Germany.“This follows a legacy of colonialism in Puerto Rico, where an already exploited local populace is meant to embrace anything imported as automatically superior.”

There are other tax breaks that do benefit local residents, a point the National Puerto Rican Chamber of Commerce is seeking to clarify. As part of the Blockchain Week, the chamber organized a workshop conducted in Spanish that was attended by more than 100 Puerto Ricans. [. . .]  “Would a lot more native Puerto Rican ventures and entrepreneurs find more success if they had the same incentive opportunities? No doubt,” said Vega Matos. “They have the vision, talent and drive. But the reality is newcomers have an unfair advantage.” [. . .]

[. . .] Some said they had struggled to get a piece of the growing funds on the island. Michaelangelo Angleró, who was born in San Juan and in 2018 founded an AI-powered asset manager for crypto, said he often felt he was up against a “buddy system” in which local investors only fund one another’s projects. “It is a one-sided relationship where they are making billions and investing very little locally,” he added. “Most of these people don’t really give a shit about Puerto Rico, the community, or growing the local ecosystem.” [. . .]

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[Photo by Erika P. Rodríguez/The Guardian. Top left: People attend the ‘BUIDL Here’ (not misspelled, it’s BUIDL) conference at Vivo Beach Club in Carolina, Puerto Rico, on 5 December. Top right: A sticker against gentrification at San Sebastian Street in Old San Juan.] 

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