Europe attracts US-burned crypto firms

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“We will have the best framework in the world in which businesses can grow,” said Stefan Berger, the conservative German lawmaker who led the EU’s crypto rulebook which will come into force in the second half of 2024. everything you need a viable market.

It’s an argument that no American policymaker is in a position to make, with American politicians at odds over whether to embrace or discourage crypto growth and regulators taking matters into their own hands. The collapse of digital asset exchange FTX has only complicated matters, exposing widespread industry mismanagement and unseating its former chief executive Sam Bankman-Fried, once a major crypto player. in Washington. Sympathetic US lobbyists and lawmakers are trying to keep the pressure on Congress by warning that the US is falling behind the rest of the world without a clearer set of rules.

At stake is America’s reputation as a promoter of innovation and a global hub of finance. As the crypto world has lost its political clout in recent months, the advancement of the EU gives new motivation to industry allies in Congress to push their agenda forward.

“The European Union is before us. Switzerland is ahead of us. Australia is ahead of us,” said Senator Cynthia Lummis of Wyoming, a Republican bitcoin lawyer who has drafted a comprehensive crypto regulation bill. “England is ahead of us. So it’s not just about second and third world countries.

The contrast with the EU is clear because U.S. regulation of the industry relies on a mix of state-level rules and licenses that work alongside federal financial safeguards designed for old-school banking, traditional stock trading and commodity exchanges.

Despite the inconsistencies, crypto has thrived for years in the US system — thanks to friendly approaches at the state level and little intervention from Washington.

But the sector is beginning to face a sweeping crackdown from federal agencies that have lost patience with what they see as a blatant display of traditional financial regulations on investing and lending.

“We’re feeling a moment of crypto bombardment, where they seem to be trying to throw everything they can into their authority – or potentially exceeding their authority – and we think that’s shortsighted,” said Kristin Smith, CEO of the Washington-based company. Blockchain Association. “We think it’s bad for the competitiveness of the United States.”

The EU’s openness to crypto is a stark turnaround: the Europeans crafted their new rules after essentially freezing the industry when Facebook, now known as Meta, announced its digital currency Libra in 2019.

European officials – driven by fears that big tech is raising private money – effectively blocked the project from being launched.

This episode prompted lawmakers to draft industry-specific regulations before similar crypto products could gain a foothold on the continent.

The law on crypto-asset markets that EU policymakers have proposed, dubbed MiCA, sets strict rules for stablecoins, a type of digital asset like the now-defunct Libra, which is anchored to a national currency or other established financial product. It also creates investor safeguards, capital requirements, and corporate governance rules for the entire crypto market. Aides to US lawmakers have been in Brussels for the past few days to speak with European officials about the new law.

“Europe is clearly outpacing the United States in establishing holistic regulatory frameworks for the crypto-asset industry,” said Susan Friedman, international policy adviser at Ripple, a digital currency firm that is mounting a legal challenge against a lawsuit filed by the U.S. Securities and Exchange Commission “We expect Europe to become a natural hub for responsible participants in the future.

Certainly, some European officials fear that the new law will not be enough to prevent another debacle at a global crypto company like FTX. They want to add additional safeguards.

“MiCA is a positive step in the right direction, but it is certainly not perfect or complete,” said Ernest Urtasun, the leftist Spanish Green parliamentarian who helped draft the regulations. “More work needs to be done to address the regulatory and oversight challenges we see today.”

Mark Hays, senior policy analyst at Americans for Financial Reform, said parts of the EU regime may be more permissive in the eyes of the crypto industry compared to “the direct effort underway in the United States.” United to simply apply the rules that exist”.

“The tension between the European Commission, Council and Parliament means that EU rules are particularly complicated, and this is an environment in which industry lobbyists thrive,” Hays said.

In the US, pressure from the crypto industry is collapsing with its skeptics in Congress unfazed by the prospect of Europe taking market share. And some prominent crypto business players say the EU is still not a welcoming place to operate.

“Crypto isn’t like it provides that many jobs,” Senate Speaker Sherrod Brown (D-Ohio), a digital currency critic, said in an interview. “Companies always threaten to outsource when they play with the system.”

Dante Disparte, chief strategy officer and head of global policy at stablecoin issuer Circle, said he would take on US regulatory ambiguity “in the nearly five years of haste and wait in which Europeans jumped in” when drafting and implementing their new law.

Disparte speaks from experience. He was one of the leaders of Facebook’s Libra project, which EU officials blocked from starting.

“You might not like that America is stuck in a constitutional fintech crisis that protects and preserves states as the labs for fintech innovation in the country,” he said. “But it’s a powerful feature, not a bug.”

Eleanor Mueller contributed to this report.

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