Europe takes the lead on the US in crypto regulation

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Born out of a desire to create a decentralized currency not controlled by a government, the crypto movement has long resisted regulation.

But those days may be numbered as the EU recently adopted comprehensive rules regarding crypto assets, taking a lead over the US, which has meanwhile clamped down on two major crypto exchanges.

In April, the European Parliament passed the Regulation on Crypto-Asset Markets (MiCA) by a wide margin and it received final approval from the Commission last month.

The industry’s first comprehensive regulation, the MiCA aims to reduce illegal practices, including money laundering, as well as protect investors and consumers.

It covers crypto asset issues as well as the trading platforms and “wallet” providers where investors hold their assets.

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“MiCA brings clarity,” said Jérôme Bailly, vice-president of Crypto Valley, an association that supports the crypto industry in Switzerland.

“We are no longer in the era of the Wild West and what everyone wants in the industry is the rules of the game,” he told AFP at an event in support of the startups.

Bailly said that while everyone was initially hostile to MiCA, “it eventually became a selling point for Europe” because it sets a clear framework for businesses to then organize their business operations around.

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He believes a “European bloc” will emerge, with Britain and Switzerland following the EU’s lead to create a regulatory zone.

On the other hand, “the signals from the United States are clearly negative”, warned Bailly.

US crypto firms have been weakened by the bankruptcies of Signature Bank, Silvergate and Silicon Valley Bank, which were key institutions in funding the broader tech sector and startups.

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Moreover, US authorities have started to turn the screws on the sector since the failure of FTX and Genesis exchanges, accusing the world’s leading cryptocurrency exchange Binance of violations of securities laws, as well as its rival Coinbase. .

In February, California stock exchange Kraken was heavily fined by the Securities and Exchange Commission, which regulates securities trading, for failing to register its services.

US regulatory uncertainty is a challenge for businesses, Bailly said, as debate rages in the US over whether cryptos should be treated as financial assets and therefore regulated by the SEC, or whether they should be considered commodities and therefore supervised by the SEC. Commodities Futures Trading Commission (CFTC).

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“We see that many companies are fleeing the United States for Europe,” said Thomas Naegeli, a lawyer based in Liechtenstein, with more and more European companies staying away until he becomes clear who is responsible for regulating the sector.

“They don’t get clear answers and there’s this fear that they end up being sued by regulators,” Naegeli said.

“As an entrepreneur, you don’t want to count potential litigation cases for decades against your budget.”

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While Europe can make progress now, the United States remains the biggest market, the lawyer noted, so it is important that they resolve the regulatory situation quickly.

“That’s what companies want,” Naegeli said.

In late May, Peter Smith, the head of London-based exchange BlockChain.com, blasted some US regulators’ “openly negative” attitude towards crypto.

“Thousands of incredibly talented people have moved from the United States to other jurisdictions over the past year” for countries with a “constructive” approach to regulation.

“France, Portugal, UAE, Singapore, Hong Kong, London, increasingly and interestingly, have all been very excited to pick up the slack that the United States has created,” Smith told the Qatar Economic Forum.

Martin Hiesboeck, head of research at the Uphold exchange, said all the noise was to goad U.S. authorities into clearing the rules of the game.

“Nobody really wants to leave America,” Hiesboeck said.

“They just want to send messages to put pressure and make sure that American lawmakers realize that if they don’t regulate properly, they will lose millions of businesses, jobs and income,” he said. added.

In early June, Republican lawmakers tabled a bill that Hiesboeck hopes will serve to open a debate with Democrats on regulating the sector.

“I always say America sometimes takes longer but…they often have better regulation and the world pays more attention to their regulation than anybody else,” Hiesboeck said.

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