European and Asian regulators welcome crypto innovation as US cracks down

by Arthur · April 7, 2023

Gary Gensler is known for being much stricter with cryptocurrency regulations than more innovation-friendly European and Asian counterparts. (AP Photo/Evan Vucci)

Negative headlines may have dominated talking points in North America, but in contrast, European and Asian policymakers are moving forward with crypto digital innovation.

In recent months, US banking regulators have issued policy statements highlighting the risks of crypto, the Fed denied Custodia Bank’s membership application, and the SEC has pursued regulation by enforcement, including the recent Wells Notice sent by the SEC to Coinbase. The mood in the US has not been positive. Now data indicates that digital innovation is on the way out of the US

Thousands of developers worldwide commit code to open source crypto projects via Github. US dominance in open source contributions fell from 40% in 2017 to 29% in 2022, according to the latest Electric Capital Developer Report. This means that more than 70% of the crypto developers surveyed live in places like Europe, Latin America and Africa.

In Asia, India noticeably increased its share of active crypto developers. Despite the volatile price of bitcoin and other cryptos, the blockchain industry is still booming. Overall, the Electric Capital report counted the number of monthly active developers at 297% greater in 2023 than in the January 2018 bull market, when bitcoin reached a new peak in network value. In short, the price of bitcoin and regulatory backlash to mismanagement and fraud have not hampered the industry’s global growth.

Many developers and entrepreneurs are already leaving the US to consider more crypto-friendly jurisdictions. Here’s where some of the industry’s talent is headed, and why:

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The European Union

The European Union will soon vote to adopt the continent’s first comprehensive framework for crypto: Markets in Crypto Assets Regulation. MiCA will define which crypto assets will be regulated and provide a pathway for registration for crypto trading platforms and service providers.

While US companies, such as Coinbase, complain that US regulators refuse to offer clear guidelines for operating with altcoins, MiCA clearly requires European crypto-asset platforms to obtain bank accounts and insurance in the EU. Unlike companies in US fintech hubs such as Silicon Valley and New York City, crypto companies in the EU still have easier access to banking services and have not suffered from banking pressures to the same extent as US crypto companies.

Those who have met staff from the European Commission have been impressed by the level of technical knowledge, interest and pragmatism they showed. Staff acknowledged that MiCA is not perfect, but that its adoption in April will be the first step in a longer iterative process to improve the regulatory framework for crypto.

From financial regulation to taxation to digital growth, the commission’s staff were very knowledgeable. There is even an entire directorate-general at the European Commission dedicated to building the digital growth and future of Europe. It’s no surprise that Circle recently announced the opening of a new European headquarters in France. MiCA could also attract more crypto companies and independent developers to both Lisbon and Berlin, which have quickly grown into major hubs for crypto developers.

Now that MiCA will soon be adopted throughout the EU, the next step will be for the European Banking Authority and the European Securities Markets Authority to propose new rules that complement the overall MiCA framework.

Switzerland

Switzerland has long welcomed crypto innovators. It passed its “Blockchain Act” in August 2021, offering four different crypto licenses: fintech, stock exchange, investment fund or banking license. In September 2021, FINMA granted the first license to the exchange and central securities depository for trading tokens to SIX Digital Exchange. Many of the world’s most prominent crypto foundations are based in Switzerland (e.g. Ethereum, Solana, Tezos, etc.), and Zug continues to attract more crypto investors and companies.

Great Britain

Another European fintech hub that could benefit from the US crypto exodus is none other than London, the former financial capital of the Western world.

The UK Treasury announced efforts towards a crypto-asset framework in February 2023, showing that the UK intends to compete with the EU to be home to the best digital innovation centres. Meanwhile, the Bank of England is experimenting with plans for a digital central bank currency, and UK regulators have added even more homegrown improvements to MiCA, such as additional sections on regulating crypto lending.

One could argue that the UK is starting a “race to the top” – a race towards better regulation, clearer security and a more stable environment for crypto companies.

APAC

Asian countries are without a doubt even further ahead than Europe and Great Britain

Hong Kong authorities recently hosted a major summit to attract industry and will host a meeting in late April to help crypto companies find banking services. In the past few weeks alone, neighboring China paid French company Total in yuan for natural gas, plus Brazil and China agreed to trade in their respective currencies instead of US dollars. Similar yuan clearing arrangements with Kazakhstan, Laos and Pakistan are already underway. Although not explicitly about crypto, these actions underscore China’s ambition to dethrone the dollar as the global reserve currency. Digital yuan and crypto experiments will only accelerate these efforts to global payment rails.

Meanwhile, the Bank of Japan is starting a digital yen pilot program in a few weeks, and is exploring how to offer digital yen in the retail market throughout April.

Japan, which holds the G7 presidency this year, was the first major country to pass the stablecoin legislation that will take effect in June 2023. It is establishing itself not only as a crypto hub, but as a Web3 center.

The future of crypto looks bright in many jurisdictions around the world. If American policymakers look beyond our borders, they will see that the United States cannot remain a global economic leader if American crypto innovators must move overseas for their businesses to thrive.

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I am the Chief Global Regulatory Officer for Crypto Innovation Counsel. I am also a member of Mastercard’s advisory board, visiting fellow and adjunct professor at Georgetown University Law Center and senior lecturer at Duke Law School. Prior to these roles, I worked in various roles in the US government, including working for the US Treasury Department, Senator Charles E. Schumer on the Dodd-Frank Act, as well as the Federal Reserve Board of Governors. As someone who invests in bitcoin and occasionally trades crypto, I am passionate about exploring the intersection of law and innovation, especially with regard to crypto.