Crypto Migration: European And Asian Regulators Welcome Crypto Innovation While U.S. Cracks Down
I'm the Crypto Innovation Counsel's Chief Global Regulatory Officer.
Negative headlines may have dominated talking points in North America, but, in contrast, European and Asian policymakers are moving ahead on crypto digital innovation.
In the past few months, U.S. bank regulators issued policy statements highlighting the risk of crypto, the Fed denied Custodia Bank's membership application, and the SEC has been pursuing regulation by enforcement, including the recent Wells notice sent by the SEC to Coinbase. The mood in the U.S. has not been positive. Now, data indicates digital innovation is moving out of the U.S.
Thousands of developers around the world committing code to open source crypto projects via Github. U.S. dominance in open source contributions dropped from 40% in 2017 to 29% in 2022, according to the latest Electric Capital Developer Report. This means that more than 70% of surveyed crypto developers live in places like Europe, Latin America, and Africa.
In Asia, India noticeably increased its share of active crypto developers. Despite the volatile price of bitcoin and other cryptos, the blockchain industry is still booming. Overall, the Electric Capital report tallied the number of monthly active developers at 297% greater in 2023 than in the bull market of January 2018, when bitcoin reached a new peak in network value. In short, the price of bitcoin and the regulatory backlash to mismanagement and frauds has not hampered the industry's global growth.
Many developers and entrepreneurs are already leaving the U.S. to consider more crypto-friendly jurisdictions. Here are where some of the industry's talent is headed, and why:
The European Union will soon vote to adopt the continent's first comprehensive framework for crypto: the Markets in Crypto Assets Regulation. MiCA will define which crypto assets are to be regulated and provide a pathway for registration for crypto trading platforms and service providers.
While American companies, like Coinbase, lament that U.S. regulators refuse to offer clear guidelines for operating with altcoins, MiCA clearly requires European crypto asset platforms to obtain EU bank accounts and insurance. Unlike companies in U.S. fintech hubs like Silicon Valley and New York City, EU crypto companies still have easier access to banking services and have not suffered from debanking pressures to the same extent as U.S. crypto companies.
Those who have met with European Commission staff have been impressed by the level of technical knowledge, interest and pragmatism they demonstrated. The staff acknowledged that MiCA is not perfect, but that its adoption in April will be the first step in a longer iterative process for improving the crypto regulatory framework.
From financial regulation to tax to digital growth, the Commission staff were highly knowledgeable. There's even an entire directorate general at the European Commission devoted to building the digital growth and future of Europe. It is no surprise that Circle recently announced the opening of a new European headquarters in France. MiCA may also attract more crypto companies and independent developers to both Lisbon and Berlin as well, which have quickly grown into major hubs for crypto developers.
Now that MiCA will soon be adopted across the EU, the next step will be up to the European Banking Authority and European Securities Markets Authority to propose new rules that complement that overall MiCA framework.
Switzerland has long welcomed crypto innovators. It enacted its "Blockchain Act" in August 2021, offering four different crypto licenses: fintech, exchange, investment fund or banking license. In September 2021, FINMA granted the first exchange and central securities depository license for trading tokens to SIX Digital Exchange. Many of the world's most prominent crypto foundations are based in Switzerland (e.g., Ethereum, Solana, Tezos, etc.), and Zug continues to attract more crypto investors and companies.
Another European fintech hub that stands to gain from the U.S. crypto exodus is none other than London, the previous financial capital of the western world.
The British Treasury announced efforts toward a crypto assets framework in February 2023, showing that the U.K. intends to compete with the EU to be home of the best digital innovation centers. Meanwhile, the Bank of England is experimenting with plans for a Central Bank Digital Currency and British regulators have added even more homegrown improvements to MiCA, such as additional sections on the regulation of crypto lending.
One could argue that the U.K. is starting a "race to the top" - a race to better regulation, clearer certainty, and a more stable environment for crypto companies.
Asian countries are arguably even further advanced than Europe and the U.K.
Hong Kong authorities recently hosted a major summit to attract industry and will be hosting a meeting in late April to help crypto companies find banking services. In the past few weeks alone, nearby China paid the French company Total in yuan for natural gas, plus Brazil and China agreed to conduct trade in their respective currencies rather than in U.S. dollars. Similar yuan clearing arrangements with Kazakhstan, Laos and Pakistan are already underway. Although not explicitly about crypto, these actions underscore China's ambition to dethrone the dollar as the global reserve currency. Digital yuans and crypto experiments will only accelerate those efforts to global payment rails.
Meanwhile, the Bank of Japan is kicking off a digital yen pilot program in a matter of weeks, exploring how to offer digital yen in the retail market throughout April.
Japan, which has the G7 presidency this year, was the first major country to adopt stablecoin legislation that will go into effect in June 2023. It is establishing itself not only as a crypto hub but as a Web3 center.
The future of crypto looks bright in many jurisdictions around the world. If U.S. policymakers look beyond our borders, they will see that the U.S. cannot remain a global economic leader if U.S. crypto innovators must move overseas in order for their businesses to thrive.
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