The US is losing its edge in crypto, says Andreessen Horowitz

As the regulatory climate surrounding crypto continues to heat up in the US, a report released by a16z on Tuesday linked a steady stream of enforcement actions and lawsuits to a decline in US leadership in digital assets.

In a brand new installment in its regular “State of Crypto” report that touches on regulation and policy, the investment arm of Andreessen Horowitz highlighted a decline in several metrics that measure crypto-related activity in the US

While the country was home to nearly 40% of crypto developers in 2018, this ratio has continuously ticked down in recent years, falling below 30% last year, according to the report.

In addition, the share of traffic to crypto-related websites from users based in the United States decreased for the third year. Last year, just over 15% of traffic to sites like CoinGecko, CoinMarketCap and Etherescan was from Americans – a notable drop from around 23% in 2019.

These declines are likely influenced by a decline in digital asset prices as well as the fact that Web3 is gaining ground globally. However, the report then delves into a16z’s policy views and makes recommendations on how regulators should act.

“Banning new business models or technologies undermines American values ​​and drives innovation and jobs elsewhere,” says the report. “Legal businesses and their clients deserve access to financial services and legal protection, from banking to privacy.”

The focus on regulation comes in the middle of a encryption in the US, where regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have stepped up their scrutiny of digital asset firms.

In particular, the leading American cryptocurrency exchange was Coinbase hit with a Wells Alert by the SEC over its staking products last month, not long after Kraken was fined $30 million by the financial watchdog — prompting it to shut down its staking-as-a-service program entirely. And a CFTC lawsuit for alleged violations of derivatives trading rules looms over Binance, despite CEO Changpeng Zhao’s repeated requests that people “Ignore FUD, fake news, attacks, etc.”

The report calls for new rules and guidance from government agencies that could help remove a cloud of regulatory uncertainty in the US – a task that a financial services subcommittee is carrying out. created this year is dedicated.

Legislation that “could provide needed clarity” was also highlighted by the report, such as the Responsible Financial Innovation Act, the Digital Commodities Consumer Protection Act and the Digital Commodities Exchange Act.

Focusing on the courts, the a16z report notes that there are several cases in the US that will further shape the country’s regulatory landscape this year. They range from CFTC and SEC lawsuits to various bankruptcy cases for collapsed firms such as FTX, Voyager and Celsius.

At the top of the list are the a16z SECs ongoing case against Ripple, a lawsuit the company has been fighting since 2020 but may soon end. The SEC’s central allegation is that the company raised $1.3 billion in unregistered securities offerings, and the outcome could have a significant impact on how cryptocurrencies are classified.

The report also cites the situation surrounding Tornado Cash as an impactful legal case, where the legal group Coin Center is currently sue the US Treasury Department’s Office of Foreign Asset Control (OFAC) over its sanctioning of the Ethereum-based coin mixer.

“Companies should be the focus of regulation, while decentralized, autonomous sOften shouldn’t,” the report adds.