A tale of two crypto-regulation methods

by Arthur · April 4, 2023

regulation than in the United States

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The first quarter of 2023 has seen a widespread US cryptocurrency crash, raising concerns about innovation and capital flight. The shutdown of Signature Bank, the SEC suing Genesis and Gemini, and the CFTC filing a complaint against Binance are seen by many as a targeted attack. On the other hand, the European Union (EU) has shown promise in offering a regulatory framework that protects consumers and encourages innovation. However, whether the EU can become a crypto-friendly hub remains debated.

In this article, Portuguese lawyer João Duarte Pereira, Unstoppable Finance Co-founder and CTO Peter Grosskopf, and Annerton Advokat and partner Alireza Siadat dissect the EU’s approach to cryptocurrency compared to the US.

Table of Contents

The promise of MiCA

João highlights the importance of the Markets in Crypto-assets (MiCA) regulation to address the EU’s financial stability and consumer protection concerns. He stated, “MiCA should be seen as a work in progress, a dialogue with industry, to develop a mutually beneficial relationship and accelerate growth and innovation.” He also believes the crypto community should welcome a fair balance between regulation and innovation. , ultimately benefiting the industry.

Peter and Alireza see the EU as ahead of the US when it comes to developing clear rules. While Peter highlighted that “Europe led privacy regulation with GDPR and will now do the same in the crypto industry,” Alireza noted that the EU’s fragmented markets appear to have been a boon for standardization in European regulation. He also stated that “the EU is on a better track than the US, having taken the right steps and assessed the issue in 2019.” The need for a comprehensive set of regulations to ensure no regulatory arbitrage and a common understanding throughout the internal market drives the EU’s approach.

Without a clear separation of powers, unfair enforcement prevails

Peter and Alireza both criticize the recent enforcement-based approach in the US, saying it makes it challenging for market participants to comply with unclear rules and increases operational risk for companies. According to Alireza, the US approach to crypto is flawed due to the dilution of separation of powers, as the regulators who are supposed to supervise and monitor end up developing and enforcing new laws.

Over the past two years, regulators have enforced their approach more strictly due to events such as Celcius, FTX, SVBVB and Silvergate. Alireza emphasizes that regulators blamed cryptocurrency as the culprit in the FTX and SVB cases, but in reality the downfall of these organizations had nothing to do with cryptocurrency.

When asked about the recent SEC notice to Coinbase, Peter agrees that it can be challenging to treat crypto innovators fairly. He suggests that “regulators must act carefully to avoid driving technologies to other jurisdictions.” Lately, many people have seen BaFin’s interpretation as less crypto-friendly.

Regulators playing Nice could be the future of innovation

However, Alireza believes that in the EU “the situation on paper certainly looks better than reality”. In recent years, BaFin, the German regulator, has taken a less friendly and sometimes inconsistent approach to interpreting and enforcing crypto companies. Alireza pointed out that approximately 20 companies are now waiting for over 800 days to receive a confirmation from BaFin regarding their license application.

Although the EU is friendlier to crypto companies than the US, there is unlikely to be a mass exodus of such companies to the EU, despite the latter’s efforts to balance promoting innovation and ensuring financial stability and consumer protection. According to Alireza, crypto hotspots are likely to fragment, with companies offering more complex products, such as DeFi, establishing themselves in places like Dubai and other markets where governments are actively promoting the crypto agenda and are keen to be seen as crypto-friendly.

Despite some inconsistencies and delays by some national regulators in the EU, Peter, Alireza and João agree that the EU serves as a global model when it comes to dealing with the complex world of crypto regulation.

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I am an experienced fintech researcher and consultant who drives customer-focused innovation in the industry. I am passionate about using new technologies and business models to increase financial inclusion, including decentralized finance, embedded finance and open banking. As a podcast host and co-founder of both 11:FS and Digital Mags, my research and insights empower banks and fintechs to create user-centric products. As a partner in Pacemakers, I advise large banks and firms on fintech investments, acquisitions and partnerships. I also teach digital economics at Manchester Business School and CFTE, sharing my expertise in creating best-in-class customer experiences. As a writer and keynote speaker, I cover European product, regulatory and technology trends, drawing on extensive experience in London, Berlin, Scandinavia and Lisbon