The US leads on many things, from political partisanship to technological innovation, but if there is one field where the country risks being left behind, it’s the burgeoning cryptocurreny sector.
Although crypto took a significant reputational hit in 2022 on the back of various crises, from the two-trillion-dollar market dip to FTX’s incredible collapse, institutional crypto firms, a heady mix of centralised exchanges, Web3 developers, banks and other innovators, have continued to build.
But it appears that US policymakers and regulators are less than bullish on this little-understood, nascent sector.
Driving the point home is the fact that crypto exchange Coinbase, far and away the largest publicly listed crypto corporation, seems to have a few regrets about making US its global hub.
“The US has the potential to be an important market in crypto, but right now, we are not seeing that regulatory clarity needed,” Coinbase chief Brian Armstrong told former UK Chancellor of the Exchequer George Osborne at a fintech conference on Tuesday.
Asked by Osbourne whether he’d consider relocating to Britain, Armstrong, in rather laisse faire fashion, said “anything is on the table… including, you know, relocating or whatever is necessary”.
Regulatory clarity will be the thing that will unlock growth in crypto, Armstrong told a CNBC journalist on his UK tour.
That doesn’t bode well for the US’s maligned regulation-by-enforcement approach, as illustrated by the regulators’ knee-jerk reactions and off-the-cuff actions against the likes of Coinbase, Binance, Kraken, Gemini and just about every other crypto firm of notable footprint.
The Wells Notice issued by the US Securities and Exchange Commission (SEC) in March is the perfect case in point.
Wells Notices are typically precursors to regulatory enforcement actions, but to this day Coinbase has not been given any clarity over the nature of the SEC’s pending enforcement.
Armstrong said over 30 meetings with the SEC in the past year have failed to give any real insight into what the regulator wants from the group.
Why would a company want to work in such a belligerent environment when other major jurisdictions have made significant headway into providing regulatory clarity?
Worse still is the fact that US regulators can’t even decide who has jurisdiction; the SEC and the Commodity Futures Trading Commission have been butting heads over who has the remit. There’s no such issue in the UK, where commodities and securities both come under the remit of the Financial Conduct Authority (FCA).
Britain has been actively engaged in the crypto regulation debate under prime minister Rishi Sunak, who has long touted Britain’s potential as a “global crypto hub”.
The UK launched a consultation in February on the matter, though as previously discussed in Proactive, there are blind spots when it comes to investor protections and compensation.
The 27-member European Union, meanwhile, is poised to harmonise most aspects of crypto regulation under the bloc-wide Markets in Crypto-Asset (MiCA) bill, due to be voted on this Thursday.
We should be wary of calling these various consultations and bills particularly pro-crypto; they will likely usher in a wave of stringent reporting requirements, securities law mandates and could even force the exchanges into reevaluating how they do business.
But they’re invariably the preferred option compared to the regulation-by-enforcement guessing game.
UK vs EU
Post-Brexit, the UK and EU have taken slightly different approaches in their efforts to open up the cryptocurrency market.
Built from the ground up, the EU MiCA bill is tailored specifically to the nascent sector, while the UK is attempting to retrofit existing regulatory mechanisms.
If you ask former UK chancellor and ardent remainer Phillip Hammond, the EU approach is so good that it presents a “real risk” to financial services innovation in London.
“It is a very uncomfortable proposition 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 to innovators than the UK does,” Hammond said on a recent episode of The Crypto Mile.
Europe often leads the way in these sorts of things. No better example was GDPR, the EU regulatory framework that quickly became the global benchmark on personal data and privacy.
The UK retained the law in its exact form after leaving the bloc, while the California Consumer Privacy Act has fundamentally similar parallels.
More recently, the 2022 Digital Markets Act, which targeted abusive market actions of the “gatekeepers” of the digital economy (think Meta, Amazon, Google et al) had implications far beyond the EU’s borders given the crippling fines Big Tech companies face for breaching the directive.
Then there’s the fact that major UK banks including Nationwide Building Society, HSBC and NatWest have implemented, some would say overly harsh, bans on crypto-adjacent using their services.
Perhaps the UK, too, risks being left behind if it doesn’t form a cohesive vision among all major stakeholders.