The headlines of every Web3 media outlet have been dominated by America’s regulation by enforcement — it seems like every day there is a new lawsuit or firm exiting the country. The current outlook for crypto may appear bleak. But the night is darkest just before the dawn — and there are many signs of hope for builders thinking of leaving the space.
American exceptionalism
In stark contrast to America’s piecemeal approach, dozens of countries have established clear and explicit guidelines for the crypto and blockchain industry. Here are some examples:
- The European Union: The E.U. recently passed the Markets in Crypto Assets Regulation (MiCA), which aims to create a harmonized framework for crypto assets across member states. This landmark regulation provides legal clarity and consumer protection measures, fostering innovation within the region.
- United Kingdom: The U.K. is developing its blockchain-based solutions in a controlled environment. Additionally, the country is in the process of drafting new legislation to address the evolving needs of the crypto industry, further demonstrating its commitment to fostering innovation.
- Hong Kong: Hong Kong has been actively inviting global crypto companies to set up operations in the city, and it recently enacted a new regulatory framework for licensing crypto exchanges. By embracing digital innovation and creating clear guidelines for stablecoin projects, Hong Kong aims to position itself as a leader in the crypto space. They are even inviting large U.S.-based companies to move operations to their jurisdiction.
- Japan: Japan, the home of Mt. Gox, has historically had one of the strictest regulatory regimes, banning privacy coins and until recently, foreign-issued stablecoins as well. Today Japan recognizes cryptocurrencies as legal property under its Payment Services Act. This recognition has provided a solid legal foundation for businesses and individuals engaging in crypto-related activities, boosting investor confidence and promoting adoption within the country.
- Singapore: Singapore has taken a proactive approach by licensing and regulating cryptocurrency exchanges, ensuring compliance with strict anti-money laundering (AML) and know-your-customer (KYC) regulations. This month, the city-state also announced it would begin requiring crypto service providers to segregate customer funds in a trust, to reduce the risk of misuse or loss. Singapore’s regulatory framework has attracted global crypto companies to establish operations in the city-state, further solidifying its position as a crypto-friendly hub.
- Dubai: Dubai, the financial center of the UAE, has introduced Virtual Asset Regulatory Authority (VARA), providing a clear licensing and code of conduct regime for digital asset issuers and service providers.
While the United States grapples with regulatory uncertainties, progress made by other jurisdictions globally cannot be overlooked. These countries are seizing the opportunity to attract talent, businesses and investments that might have otherwise gone to the United States.
United States at a regulatory crossroads
The lack of regulatory clarity is in large part due to America’s political gridlock. There has not been legislative progress on providing clear rules. Different agencies are in a turf war over who can regulate this industry. While the Securities and Exchange Commission has been the loudest and most aggressive agency, Financial Crimes Enforcement Network and Commodity Futures Trading Commission have been more collaborative and are working to establish clear regulations. Even amidst this gridlock, members of both the House and the Senate are working on creating legislation that would clarify much for those building in America.
And the SEC may not be on as strong of a foundation as many believe. Members of Congress are trying to pass the SEC Stabilization Act to depoliticize the SEC and remove Gary Gensler. And the SEC is seeing massive employee attrition, with over 20% of senior officers turning over last year. And many senior members who remain are vocally opposing their chairman’s regulation-by-enforcement approach. Commissioner Hester Peirce, a frequent dissenter of SEC actions, has described her agency as a “paternalistic and lazy regulator.”
If America’s approach to digital asset regulations seems disjointed, that’s because it is. Multiple regulators share potentially overlapping jurisdictions over crypto and appointed regulators are frequently at odds with elected representatives. There is a small window in which the U.S. can stay in the lead by passing a legislative framework that fosters innovation, provides legal clarity, and establishes robust consumer protection measures.
Crypto’s global inevitability
For many who work in Web3, the inevitability of our blockchain-based future is obvious. Just as the internet transformed much of the society around us over the last 20 years, blockchain will transform much of the world over the next 20 years.
This inevitability was frankly not the case in the last crypto-winter. During the dark days of 2018, it was unclear if crypto would survive. If the approach of regulation by enforcement had been taken then, the SEC might have succeeded in stifling this ecosystem.
But the current global crypto landscape is vibrant. And America’s leading companies are embracing this new innovation, from Nike and Starbucks launching NFT-based loyalty programs to PayPal exploring the future of programmable payments. The pace of innovation and experimentation is only increasing.
Seemingly, the biggest question of the regulatory crackdown in the U.S. is what jurisdictions will benefit most from America’s haphazard approach to providing regulatory clarity. As the dawn of Web3 approaches, it is essential for all stakeholders, including regulators, builders, companies and individuals to focus on building value and trust to create a thriving and sustainable ecosystem for future blockchain native generations.
The views expressed here are those of the author and do not necessarily represent the views of his employer.
