Crypto gets red carpet treatment in Paris – and red flags

by Arthur · March 30, 2023

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Virtual currency entrepreneurs are feeling the heat in the US after the spectacular collapse of FTX, the closure of several crypto-friendly banks and now a top regulator’s case against Binance Holdings Ltd. which threatens to engulf a number of trading firms. But it’s a different mood in Europe, particularly in France, where tech bros are more likely to get the red carpet treatment.

Jeremy Allaire, co-founder of stablecoin issuer Circle, is one of them. Speaking on the sidelines of the Paris Blockchain Week junket in the luxurious surroundings of the Pavillon Vendome, he described the global changes in crypto oversight as “a regulatory Game of Thrones” – where you win or die. His company, which played a leading role in the Silicon Valley Bank crisis when it tried to withdraw as much as $3.3 billion, is “doubling up” Europe with applications for more licenses in France – an “innovation-forward” country, Allaire says. with a regulator-friendly suit and tie.

Paris is not alone in fighting to be a crypto hub – Allaire was also recently in London – but the rhetoric of Emmanuel Macron’s administration chimes with the view that crypto is part of a larger competition to attract business. At a recent blockchain event I moderated in London, French officials touted labor market reforms, tax cuts and a bigger continental banking sector after Brexit as incentives to set up shop in France, where around 50 digital asset firms have registered with the regulator and domestic champions such as Kering SA run still with the metaverse.

Beyond the faded hype, Paris hopes it can attract coders and technical skills relevant to all sorts of potential digital disruptions. New rules have instilled confidence in the EU’s ability to reduce the crypto risk that has been on full display. The EU’s supervisory framework for digital assets, called MiCA, will come into effect in 2024 and covers several tokens including stablecoins; that’s why Circle is also keen to expand its new euro-backed token. The French market regulator AMF said in January that it was open to innovation, but that the crypto universe now had to choose a regulatory path.

The risk is one for confidence – and a setback if something goes wrong. Since FTX’s dramatic implosion, pressure from jittery French lawmakers on the Macron administration has led to stricter oversight of NFT sports app Sorare and a tougher registration process for digital asset firms before MiCA goes live. And that was before the US Commodity Futures Trading Commission’s lawsuit against Binance, alleging that the exchange routinely violated derivatives rules. (Binance disagrees with the characterization of the allegations and says the complaint is incomplete.) “Being attractive to business is not the most important thing…Investors need maximum security,” says Sen. Herve Maurey, who has called for stricter rules.

What happens in the US will inevitably continue to color what happens in Europe and France, where there is no parliamentary majority and where another financial or banking scandal is the last thing Macron needs. EU lawmakers are keeping their guard up, with focus shifting to NFTs’ money laundering risks. Aside from canapés and keynote speeches, crypto firms talk more about the basics of survival – like finding banks that will accept them as clients. “The environment is more volatile than it was a year ago,” says Francois-Joseph Schichan of Flint Global.

For the likes of Circle’s Allaire, this is all part of a journey towards token acceptance as the digital dollar and euro proxy the company offers. The stamp of approval from government institutions could be a step toward ending the crypto Wild West: Citigroup Inc. estimates that by 2030, central banks could well issue $5 trillion of their own circulating digital currencies. And perhaps for Paris it’s a calculated bet: even if Gucci or LVMH Moet Hennessy Louis Vuitton SE’s virtual handbags go nowhere, France will still be able to export the real thing.

Yet at a time when angry protesters are fighting the perceived inequality of top-down pension reform, and with the French swept up in the global sports betting boom, even techno-optimistic leaders like Macron will be acutely aware of political risks that appear to favor the privileged at the top over those at the bottom – including the risk of an unexpected, digitally-led banking crisis. Let them eat crypto? Maybe not.