California’s Crypto Tax Threat: Industry Leaders Warn of Mass Capital Flight

California's proposed digital asset tax is sparking a revolt. Top crypto executives are sounding the alarm, warning that the state's aggressive tax plan could trigger a mass exodus of capital and innovation.

The Innovation Drain

Founders and CEOs argue the tax creates a hostile environment. They claim it unfairly targets a nascent industry, penalizing growth and long-term investment. The fear isn't just about higher costs—it's about signaling. The message, they say, is that California would rather harvest revenue than cultivate the next wave of financial technology.

A Race to the Bottom (For Regulators)

The threat is simple: capital is mobile. Entrepreneurs and investors can easily relocate operations to friendlier jurisdictions like Texas, Florida, or Wyoming. This isn't theoretical; we've seen this playbook before with traditional finance. The state risks winning a small tax battle while losing the entire economic war, watching its early-mover advantage in Web3 evaporate overnight.

The Balancing Act

Proponents of the tax see it as a necessary step for clarity and revenue. But the industry retorts that premature, heavy-handed regulation stifles the very innovation that generates future tax bases. It's the classic short-term cash grab versus long-term ecosystem building—a calculation governments often get wrong, usually to the benefit of offshore havens with more vision (or less bureaucracy).

The clock is ticking. If California pushes ahead, it may soon find its crypto talent and treasury reserves have quietly slipped across state lines, chasing rational economic incentives—because in finance, sentiment is fleeting, but tax liability is forever.

Bitwise’s Horsley and Kraken’s Powell say investors will leave California 

While the proposal’s ballot fate is uncertain, some billionaires are unwilling to risk their fortunes. Bitwise CEO Hunter Horsley and Kraken co-founder Jesse Powell, among other crypto leaders, even argued that the tax would simply encourage the wealthy to leave.

Horsley shared on X, “Many who’ve made this state great are quietly discussing leaving or have decided to leave in the next 12 months.” 

Similar to that, Powell commented, “A 5% theft of unrealized gains and assets taxes were already paid on is about the most retarded thing I’ve ever heard. I promise you this will be the final straw. Billionaires will take with them all of their spending, hobbies, philanthropy, and jobs.”

Venture capitalist Chamath Palihapitiya also stated that tax risks are harming entrepreneurship by pressuring founders to pay levies on paper wealth — including those whose assets are illiquid. He discussed situations where founders could owe millions without the means to pay, which could chill early‑stage innovation in California.

Nevertheless, the SEIU UHW maintains that the funds could counter federal budget cuts, potentially raising $100 billion from around 200 billionaires. Suzanne Jimenez, the chief of staff at SEIU UHW, affirmed that the organization wants to fill a healthcare funding shortfall and described the state’s billionaires as its “most fortunate” residents.

Ro Khanna, a Democrat from California’s 17th District, is also a key supporter of the proposal. Through a series of X posts, he claimed the wealth tax will fund better education, housing, and childcare, ultimately benefiting US innovation.

Norway introduced a similar tax system, but it did not work as expected

Castle Island Ventures co-founder Nic Carter and ProCap BTC CIO Jeff Park also believe the tax could drive billionaires to relocate their capital out of California. Carter said that while he generally liked Ro and had positive experiences with his staff, he wondered whether they had analyzed how wealth taxes affect capital mobility.

He added that capital mobility has never been higher; thus, a one-off wealth tax sends a message to capital markets that more aggressive measures could come later.

Fredrik Haga, co-founder and CEO of on-chain analytics firm Dune, also explained that when Norway introduced a comparable tax, it triggered an exodus of wealthy individuals and failed to raise the expected funds. He maintained that Norway’s experience showed how aggressive socialist ideas can make society more equal but economically worse off.

Austin Campbell of NYU and Zero Knowledge Consulting, along with Bitwise founder Hunter Horsley, also cited a December audit by the California State Auditor that raised concerns over questionable use of taxpayer funds. Horsley stated that Ro was not prioritizing fixing the Core issues, but was instead spending time pushing a policy he characterized as asset seizure to raise more money for the state, reflecting what he saw as a broader failure of public service.

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