European and Asian regulators hail crypto innovation as US cracks down

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Gary Gensler is known to be much stricter with cryptocurrency regulations than his more innovation-friendly European and Asian counterparts. (AP Photo/Evan Vucci)Copyright 2021 The Associated Press. All rights reserved.

Negative headlines may have dominated talking points in North America, but, by contrast, European and Asian policymakers are forging ahead in digital crypto innovation.

In recent months, U.S. banking regulators have issued policy statements highlighting crypto risk, the Fed has denied Custodia Banks membership application, and the SEC has pursued regulation through enforcement, including the recent Wells notice sent by the SEC to Coinbase. The mood in the United States was not positive. Now the data shows that digital innovation is leaving the United States

Thousands of developers around the world commit code to open source crypto projects through Github. US dominance in open source contributions has fallen from 40% in 2017 to 29% in 2022, according to the latest Electric Capital Developer Report. This means that over 70% of crypto developers surveyed live in places like Europe, Latin America, and Africa.

In Asia, India has significantly 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 listed the number of monthly active developers at 297% more in 2023 than during the January 2018 bull market, when bitcoin hit a new peak in network value. In short, bitcoin’s price and regulatory reaction to mismanagement and fraud has not hindered the industry’s global growth.

Many developers and entrepreneurs are already leaving the United States to consider more crypto-friendly jurisdictions. Here’s where some of the industry’s talent is headed, and why:

European Union

The European Union will soon vote to adopt the continent’s first comprehensive crypto framework: the Crypto Assets Markets Regulation. MiCA will define which crypto assets should be regulated and provide a registration pathway for crypto trading platforms and service providers.

While US companies, like Coinbase, lament that US regulators refuse to offer clear guidelines for operating with altcoins, MiCA clearly demands that European crypto-asset platforms obtain EU bank accounts and insurance. Unlike companies in US fintech hubs like Silicon Valley and New York City, EU crypto firms still have easier access to banking services and have not suffered from debanking pressures to the same extent as American crypto companies.

Those who met European Commission staff were impressed by the level of technical knowledge, interest and pragmatism they displayed. Staff acknowledged that MiCA is not perfect, but its adoption in April will be the first step in a longer iterative process to improve the regulatory framework for crypto.

From financial regulation to taxation to digital growth, the staff at the Commission was very knowledgeable. There is even an entire Directorate General at the European Commission dedicated to building digital growth and the future of Europe. It’s no surprise that Circle recently announced the opening of a new European headquarters in France. MiCA could also attract more crypto companies and independent developers to Lisbon and Berlin, which have quickly become major centers for crypto developers.

Now that the MiCA will soon be adopted across the EU, the next step will be for the European Banking Authority and the European Securities and Markets Authority to come up with new rules that complement this general MiCA framework. .

Swiss

Switzerland has a long history of welcoming 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 stock exchange and central securities depository license for token trading to SIX Digital Exchange. Many of the world’s leading crypto foundations are based in Switzerland (e.g. Ethereum, Solana, Tezos, etc.), and Zug continues to attract more and more crypto investors and companies.

United Kingdom

London, the former financial capital of the Western world, is none other than London, another European fintech hub that stands to gain from the cryptocurrency exodus to the United States.

The UK Treasury announced efforts towards a framework of crypto assets in February 2023, showing that the UK intends to compete with the EU to house the best centers of digital innovation. Meanwhile, the Bank of England is experimenting with plans for a central bank digital currency, and UK regulators have added even more local enhancements to MiCA, such as additional sections on crypto lending regulation.

You could say the UK is starting a race to the top – a race towards better regulation, clearer certainty and a more stable environment for crypto companies.

APAC

Asian countries are arguably even more advanced than Europe and the UK

Hong Kong authorities recently held a major summit to attract industry and will hold a meeting in late April to help crypto companies find banking services. In the past few weeks alone, neighboring China has been paying French company Total in yuan for natural gas, and Brazil and China have agreed to trade in their respective currencies rather than US dollars. Similar yuan clearing agreements with Kazakhstan, Laos and Pakistan are already underway. While not explicitly about crypto, these actions underscore China’s ambition to dethrone the dollar as the world’s reserve currency. Digital yuan and crypto experiments will only accelerate these efforts towards global payment rails.

Meanwhile, the Bank of Japan is launching a digital yen pilot program in a few weeks, exploring how to offer the digital yen to the retail market throughout April.

Japan, which holds the G7 presidency this year, was the first major country to pass stablecoin legislation that will come into effect in June 2023. It is establishing itself not only as a crypto hub but also as a Web3 hub. .

The future of crypto is looking bright in many jurisdictions around the world. If American policymakers look beyond our borders, they will see that the United States cannot remain a global economic leader if American crypto innovators have to move overseas for their businesses to thrive.

Follow me on Twitter or LinkedIn.

I am the Global Regulatory Director of Crypto Innovation Counsels. I am also a member of the Mastercard Advisory Board, Visiting Scholar and Adjunct Professor at Georgetown University Law Center and Lecturer at Duke Law School. Prior to these roles, I held various positions in the US government, including for the US Treasury Department, Senator Charles E. Schumer on the Dodd-Frank Act, as well as the Federal Reserve Board of Governors. As someone who invests in bitcoin and occasionally trades crypto, I am passionate about exploring the intersection between law and innovation, especially as it relates to crypto.

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