America is a leading nation in many areas, from politics to technology. However, the cryptocurrency industry could be one area where the US is in danger of falling behind.
Cryptocurrencies have had a difficult time in recent years, from a two trillion dollar market crash to the collapse of FTX. But despite this, institutional crypto firms such as centralized exchanges, WeB3 developers, banks and other innovators are still pushing on.
It appears that the US regulators and policymakers are not thrilled about this emerging, little-understood sector. Coinbase, the largest crypto company that is publicly traded, appears to regret their choice of the US as their global hub.
“We have the potential to be an important market in crypto, but we’re not getting the regulatory clarity that is needed,” said Brian Armstrong, CEO of Coinbase, during a fintech conference on Tuesday. When asked by former UK Chancellor George Osborne whether he would consider relocating to Britain, Armstrong responded that “anything is on the table … including relocating or whatever is necessary”.
Regulatory clarity is essential to promoting growth in the cryptocurrency industry, yet the US’s regulatory-by-enforcement approach has been a source of frustration for many, as illustrated by the regulators’ reactionary behaviour and off-the-cuff decisions against crypto companies such as Coinbase, Binance, Kraken, Gemini and more. The SEC has issued Wells Notices to some of these companies, but the exact nature of the SEC’s enforcement actions remain unclear.
Why would a company work in an unfriendly environment when other jurisdictions have made great advances in providing regulatory clarity? In the US, the SEC and the Commodity Futures Trading Commission are yet to decide who has jurisdiction. This is not an issue in the UK, where both securities and commodities come under the purview of the Financial Conduct Authority.
In the UK, Prime Minister Rishi Sunak has been vocal in defending Britain’s potential as a “global crypto hub”, and the country launched a consultation in February to consider investor protection and compensation. Meanwhile, the 27-member bloc of the European Union is laying the groundwork for harmonizing cryptocurrency regulation across the bloc through the Markets in Crypto-Assets Act, which is due for a vote this Thursday.
Though these bills and consultations are not necessarily “pro-crypto”, they will likely bring about a wave of stricter reporting requirements and securities law mandates, which could force exchanges to re-evaluate their business models. In comparison to the US’s regulation-by-enforcement approach, this is a far more preferable option.
UK vs EU
Post-Brexit, the UK and EU are taking slightly different paths to opening up the cryptocurrency market. The EU’s MiCA bill was designed from the ground up with the needs of the sector in mind, while the UK is trying to fit existing regulatory frameworks to the industry. Phillip Hammond, the former UK Chancellor and a passionate remainer, believes that the EU’s approach is so good that it presents a “real risk” to London as a hub for innovative financial services.
“It’s a very uncomfortable prospect to think that, with the MiCA vote coming up, we could see the European Union offering a trading environment which is more permissive and looks more attractive to institutions and innovators than the UK does,” Hammond said on a recent episode of The Crypto Mile.
The US is often at the forefront of these types of things; for instance, the EU’s General Data Protection Regulation was quickly adopted as the benchmark for personal data protection and privacy. The UK kept their law in its exact format after leaving the EU, and the California Consumer Privacy Act bears striking similarities to GDPR. More recently, the EU’s Digital Markets Act targeted the abusive market practices of the “gatekeepers” (i.e. tech giants like Amazon, Google, etc.), and these implications extend beyond the EU’s borders, as evidenced by the hefty fines Big Tech companies face for violating the directive.
At the same time, numerous UK banks, including Nationwide Building Society, HSBC and NatWest, have gone so far as to impose a ban on the use of their services by those who are interested in cryptocurrency. This could be a sign that the UK, too, is in danger of being left behind if it does not come to a unified vision among all major stakeholders.