Cryptocurrencies in Puerto Rico

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As a semi-autonomous territory that "belongs to, but is not part of" the United States,^[5] Puerto Rico is regarded as a foreign jurisdiction by the IRS for tax purposes.^[6] However, despite this the Foreign Account Tax Compliance Act (FACTA), does not apply. In 2012, the Promotion of Export Services Act (more commonly known as "Act 20") and the Act to Promote the Relocation of Individual Investors to Puerto Rico (a.k.a. "Act 22"), which facilitated the export of services and offered significant tax exemptions to wealthy individuals that were willing to relocate to Puerto Rico respectively, were passed with the intention of attracting venture funding.^[7] Most of those who arrived have focused on the acquisition of real estate and other forms of economic development. In 2019, the Legislative Assembly of Puerto Rico approved Act 60, which integrated all preexisting laws into a new Incentives Code.^[7] Roosevelt Roads Naval Station closed down in 2004, after the United States Navy was ousted from Vieques, Puerto Rico, following a wave of civilian protests. Since then, a number of initiatives have been proposed, but the redevelopment of the zone has stalled and only specific facilities have been repurposed.^[8][9] Among the projects that did not make it past the planning stage are the Caribbean Riviera mega-project under Luis Fortuño, the involvement of Clark Realty Capital in housing/commercial projects under Alejandro García Padilla and a large scale amusement park under Ricardo Rosselló.^[10][11] Others, such as the filming of productions like Wrecked and Crossbones or Marine Environmental Remediation Group's boat recycling facility were either temporary or short lived.^[12] In its current form, cryptocurrency was introduced as a response to the 2008 financial crisis and anonymous figure Satoshi Nakamoto is considered its popularizer. Bitcoin, created in 2009, was the first decentralized cryptocurrency.^[13] Since then, numerous others have been created.^[14] An increase in the value of these cryptocurrencies has made several traders wealthy, with some oscillating between being millionaires and billionaires.^[15]

Michael Terpin, founder of BitAngels, claims to be the first crypto investor to relocate by doing so in 2016 and has been active in promoting the settlement of more foreigners as part of a practice that he does not consider "colonization".^[16] On September 20, 2017, hurricane Maria passed over Puerto Rico, creating what is considered the worst natural disaster on record for the archipelago. Only months later, a group of cryptocurrency figures led by Bitcoin Foundation chairman Brock Pierce relocated to Old San Juan, gathering in hotels and purchasing a colonial building that previously housed a children's museum. The first reference to this migration in media happened in January 2018, when Jeremy Gardner said that "they're going to build a modern-day Atlantis out there".^[17] The new arrivals numbered in the dozens and were mostly composed by executives of firms (Ethereum Blockchain-as-a-Service entrepreneur Andrew Keys), early adopters, nouveau riche men that had benefited from the early adoption of bitcoin and its value rising in 2017, traders and investors, among other enthusiasts.^[18][19] According to a New York Times article that quoted Pierce, it was the economic environment that followed which convinced them to choose the ravaged archipelago.^[18] In the words of Fifth Avenue Capital's Stephen Morris, "It's only when everything's been swept away that you can make a case for rebuilding from the ground up".^[18] The group unveiled plans to build Puertopia or Sol, a city in which all transactions were made via digital currency and contracts codified in the underlying technology of blockchain.^[18] Located at in the derelict remains of Roosevelt Roads Naval Base in Ceiba, Puerto Rico, the project would include the first cryptocurrency-exclusive bank in the world and was to be a showcase for the group to promote their vision of "what a crypto future could look like".^[18] The group claimed that it would be investing in the local economy, in particular the widespread reconstruction efforts following the hurricane. The Puertopians are part of a larger group of clients that have fueled the creation of local businesses dealing with tax and legal advice for the incoming super rich. A number of foreign-owned banking institutions were created in Puerto Rico, including FV Bank, Mercantile Bank International (SJMX, formerly San Juan Merchantile Exchange) and a new iteration of the historical Medici Bank, all of which welcomed transactions in cryptocurrency.^[20] Bitcoin ATMs hosted by Bitstop and Athena Bitcoin began being installed, while Robots Inc. was granted a patent for a similar device.^[21] A pattern of decline in the value of digital coins during 2018 directly resulted in the dissolution of the San Juan-based noble bank. As the Puertopians began to lose money, some left Puerto Rico, while others adopted defensive measures while the possibility of a prolonged market crash, known as the "crypto winter", was forthcoming. As traders lost money initiatives involving local non-profits were abandoned, mainly those directed towards aiding the communities that remained affected by the hurricane. The goal to build a crypto city remains unfulfilled, with recent initiatives at Roosevelt Roads focusing on restoring its airport and establishing a spaceport.^[22] Pierce, who purchased a colonial building from the Catholic Church in 2020, has claimed that "these were loose ideas, nothing of which was concrete of well thought out".^[23][3] Puertopians themselves broadened their presence in the archipelago, retaining their home base in Old San Juan but acquiring properties in Dorado, Humacao, Rincón and the island municipality of Vieques.^{[7][19][24][25]}

During the summer of 2020, Puerto Rican software mogul Orlando Bravo became interested in bitcoin while vacationing at Dorado, purchasing an undisclosed amount of it and publicly speaking in its favor. By 2021, the influx had increased again, with the relocation of cryptocurrency hedge funds Pantera and Redwood City Ventures as well as the mining operations of CoinMint.^[26] Among these was Frances Haugen, who earned notoriety after exposing the inner workings of Facebook and had purchased enough cryptocurrency "at the right time".^[27] At the time, retired baseball player Alfredo Escalera publicly lobbied for more public policy, stating that "our governors should educate themselves about the development of the technology, the mining of the coins and the programming of the 'blockchains' to attract the thousands of investors that engage in this business worldwide."^[28] Shortly after moving to Dorado, influencer Logan Paul became involved into a cryptocurrency named Dink Doink, which has been labelled as a "scam" by Nasdaq.^[29] Crypto personality Amanda Cassatt and her husband Samuel relocated, as more individuals arrived from different states.^[3] However, this wave also brought individuals that did not receive Act 60 exemptions but also became involved with the community, such as Keiko Yoshino of the Puerto Rico Blockchain Trade Association.^[1]

Aware that the perception of the group became increasing contentious as property prices in San Juan increased, the Puertopians began to rebrand their efforts as "more inclusive, empowering and communal", individual-owned and linked them to the advent of Web3.^[3] As such, weekly events known as CryptoCurious and Crypto Mondays are organized with the general public as their targets.^[3] Local crypto entrepreneurs such as Juan Carlos Pedreira began to capitalize.^[19] According to the DEDC, at least 31 individuals classified as "crypto entrepreneurs" arrived to Puerto Rico in 2021, with potentially up to 100 involved in the industry.^[30] Among local corporations, the Díaz Fontanez Group was the first to pay the salary of its employees in digital currency, citing the move as a response to growing inflation in international markets.^[31]

The 2022 Puerto Rico Digital Trends Study published by the Sales & Marketing Executives Association (CME) placed overall awareness of cryptocurrencies in 67.7%, of which 40.6% "does not understand" how they work and another 30.5% "does not consider them trustworthy", with another 14.5% considering them "the money of the future".^[32] The temporary suspension of the physical presence requisite prior to hurricane Fiona led to YouTuber/investor Hayden Bowles publicly announcing that he was leaving the island prior to the event, sparking public backlash.^[33] Likewise, criticism was targeted at the group for failing to deliver on most of their proposals, including the construction of decentralized power grids backed by blockchain technology, following Maria and for failing to deliver funds gathered after the latest storm to local NPOs.^[33]

In January 2022, Speaker Tatito Hernández of the Popular Democratic Party (PPD), who has argued in favor of employing blockchain for tasks such as fighting public corruption, revealed that the House of Representatives of Puerto Rico was investigating the topic of creating a regulatory frame for cryptocurrency.^[34][35] House Resolution 527 was passed with the expressed intent of studying “the concept of blockchain as a government filing system, as well as the use of digital coins (cryptocurrency) as an accepted form of payment in Puerto Rico".^[36] Jesús Manuel Ortiz of the PPD, chair of the House of Representatives of Puerto Rico's Government Commission and who has publicly endorsed cryptocurrencies as the “scaffold of the worldwide economy in the near future", was responsible for the investigation.^[36][37] According to a February 2022 report, the Puerto Rico Department of Treasury has established that the acquisition of property and real estate using cryptocurrencies has become widespread in Puerto Rico.^[38] All of those involved in the hearings acknowledged that such transactions had become pervasive.^[36]

In representation of the PRDT, Ángel L. Pantoja recommend following the Internal Revenue Service (IRS) guidelines on the topic, given the political status of Puerto Rico and a lack of precedent.^[36] Natalia Zequeira, Financial Institutions Commissioner, emphasized that the volatility of cryptocurrencies had convinced banks to adopt “conservative positions" and after listing what she perceived as positives and negatives, concluded that once the regulatory framework is in place “Puerto Rico cannot fall behind. The future is all about markets, transactions and digital currency.^[36] It is imperative for us to be at the forefront of this technology".^[36] Speaking for the Puerto Rico Bankers Association, Zoimé Álvarez argued that in order to comply with Federal Deposit Insurance Corporation standards regulatory controls were required to prevent illegal activity such as “money laundering [or] terrorism financing".^[36] Afterwards, Ortiz made it clear that he had been satisfied and anticipated that bill will be presented to regulate cryptocurrencies in the jurisdiction.^[36]

On November 7, 2022, the Government Commission issued a positive report signed by Ortiz for the investigation of potential uses for the implementation of blockchain for public purposes and regulating cryptocurrencies.^[39] The DDEC created its own regulatory framework in February 2023, when it extended Law 60 tax exemptions to blockchain-related ventures.^[40] Days later, the PRHOR defeated P.C. 1565 with votes of 24–14, which was promoted by Ortiz and intended to create a task force, the Comité Asesor de la Asamblea Legislativa para implementar la tecnología Blockchain, to create a plan for the implementation of the technology within 180 days.^[41]

As the price of all cryptocurrencies fell systematically throughout 2022 and scandals such as FTX’s sudden bankruptcy contributed to the collapse, the Puertopians publicly dismissed the issue as cyclical and continued operations unconcerned, this despite facing additional criticism that Puerto Ricans that wanted to begin startups within the industry received little to no support from the investors.^[43] When queried, some shrugged off thousands of dollars in losses and that fewer people were attending their events at San Juan by saying that the devaluation had repelled “crypto tourists” away, even claiming that the “quality” of attendees had improved.^[44] The group was also tied to other incidents that took place within the archipelago, including the death of DeFi developer Nikolai Mushegian at Condado following a paranoid Tweet about being pursued by intelligence agencies including the CIA and Mossad, their “sp[ies]” and what he called the “pedo elite”.^[45][46] The market collapse led to a decrease in settlers that moved to Puerto Rico expecting to become rich from their investment in the future, while sobriety overtook the longstanding Puertopians.^[47]

Pierce himself experienced a series of legal battles during this timeframe, with most lawsuits involving former business partners in acquisitions such as the former Vieques W Hotel and the refurbishing of a yacht named Aurora.^[48] Six years after the promised technology-driven economic revolution, the general public has yet to see the results, with cryptocurrencies remaining a niche in Puerto Rico.^[48] The former actor pointed to other blockchain related ventures such as the Lighthouse NFT Gallery as an example of “pioneering tech” being introduced to the globe from the island, but openly admitted that despite being the first of its class in the world the studio was not turning a profit.^[48] Despite the struggles of the Puertopians, a group of local residents formed by Amanda Fabiano, Tracy Hoyos López and David Bailey, managed to find its way into American national politics.^[49] After briefing Donald Trump on cryptocurrencies and public policy, they were held responsible by the media for the presidential candidate's shift in discourse between his 2020 and 2024 campaigns.^[49]