My answer to this question is yes and no.
Europe’s crypto star is certainly rising, thanks in part to one of crypto’s largest legacy nemeses - regulation - and also because the U.S. government seems to be doing everything in its power to make the U.S. inhospitable for crypto companies.
It’s a huge opportunity for Europe to welcome them with open arms and reap the benefits. And all signs point to the region making the absolute most of that opportunity to build a strong crypto Europe.
Will that rise go hand in hand with U.S. crypto’s downfall? I think it’s too soon to write it off yet. That said, if it is to hold on to crypto companies and the digital innovation that they bring, the U.S. needs to readjust its perspective on the world of Web3.
“The Biden administration and federal regulators appear to be using whatever means necessary to cut the cryptocurrency industry off from banking services” read a recent article on CoinDesk.
Some have dubbed this effort ‘Choke Point 2.0’ in reference to the Obama administration’s 2013 Operation Choke Point which identified specific “undesirable” industries to be “choked” by the U.S. banking system.
Nic Carter, partner at Castle Island Ventures is credited with introducing this new term to describe “a well-coordinated effort to marginalize the industry” and de-bank the U.S. crypto market. But is it an accurate view of what’s happening?
I recently wrote a blog about the future of crypto staking in the United States after the U.S. Securities and Exchange Commission (SEC) brought charges against staking-as-a-service provider Kraken causing it to cease staking operations.
Not long after, Coinbase was issued an SEC Wells Notice indicating that the company’s spot trading, staking, custody and institutional trading businesses were at risk. The notice was met with a scathing response from Coinbase’s chief legal officer Paul Grewal and suggestions from commentators that “executives at the crypto firm have signaled for months that Coinbase is ready to grapple with the SEC in an existential case not just for Coinbase but the future of the crypto industry in the U.S. at large”.
In fact, it was Coinbase CEO Brian Armstrong’s recent comments that if the U.S. regulatory landscape doesn’t improve, he might consider moving the exchange’s headquarters to the UK, which prompted fresh discussions around the future of the U.S. crypto scene and the opportunity for Europe.
They’re not the only ones feeling disillusioned with the U.S..
Nexo, a crypto lending platform, announced its plan to exit the U.S. market in December 2022 after coming to a “dead end” with regulators. In a blog post, the company wrote “it is now unfortunately clear to us that despite rhetoric to the contrary, the U.S. refuses to provide a path forward for enabling blockchain businesses and we cannot give our customers confidence that regulators are focused on their best interests”.
Crypto exchange Bittrex Inc. also recently reported that it is closing its U.S. operations saying it is “no longer feasible” to operate in the country because of the regulatory environment.
There is clearly a strong theme amongst all of these companies. Regulation - specifically the lack of. And while the crypto industry has spurned regulation over the years, it looks increasingly like it’s becoming necessary for its future.
“The failure of the United States Congress to enact policy is pushing the industry to other countries. Europe is ahead of us in terms of its regulatory framework. Australia and the UK are getting ahead of us. Switzerland is far ahead of us”. These are the words of U.S. Senator Cynthia Lummis, aka “the Crypto Queen” and they sum up why regulation has suddenly become a game changer for a strong crypto Europe.
In April, the European Parliament passed the Markets in Crypto-Assets Regulation (MiCA) act, becoming a leading jurisdiction for crypto asset regulation. It is Europe’s first comprehensive framework for crypto and will “define which crypto assets are to be regulated and provide a pathway for registration for crypto trading platforms and service providers”.
And while MiCA may not be perfect, it’s a good start in providing the detailed guidelines that crypto companies in the U.S. are crying out for. Next steps will be for the European Banking Authority and European Securities Markets Authority to propose new rules that complement that overall MiCA framework.
The UK has also recognized the opportunity that crypto offers and in February, the British Treasury announced that it is upping efforts towards developing a crypto assets framework. The Bank of England is also looking into a Central Bank Digital Currency and regulators “have added even more homegrown improvements to MiCA, such as additional sections on the regulation of crypto lending”.
However, the UK still has some issues to overcome. The UK’s Financial Conduct Authority (FCA) continues to label crypto as ‘high risk’ and HSBC and Nationwide Building Society banned cryptocurrency purchases using credit cards for retail customers in March.
Edouard Daunizeau, CEO of the London-based crypto investing company SavingBlocks told Bloomberg that “there aren’t many options available [in the UK] - most traditional banks won’t offer banking services to crypto firms. With the recent string of events it will be even tougher. We are seeking licenses in France where we think it will be easier.”
France is certainly doing well to position itself as a crypto Europe haven. The French government’s crypto-friendly stance has caught the attention of Circle, the issuer of stablecoin USDC, and it’s looking to establish its European headquarters in Paris.
Switzerland has been a crypto hotspot for years. It was ahead of the game with regulations, putting in place its “Blockchain Act” in August 2021, offering four different crypto licenses: fintech, exchange, investment fund or banking license. In September 2021, it also granted the first exchange and central securities depository license for trading tokens to SIX Digital Exchange back in September 2021. And don’t forget that global crypto names have their foundations in the country – Solana and Ethereum are just two.
A recent study found that Europe has the highest number of crypto startups than any other world region. European companies also account for 20% of total global early-stage crypto startup funding. These numbers can only increase if Europe continues to cement itself as a crypto-friendly nation.
So, are we going to see a mass exodus of U.S. crypto companies make its way across the pond?
Some say yes. “100%. It’s happening. It is absolutely true that people are leaving,” says crypto-focused lawyer and partner at Morrison Cohen Jason Gottlieb.
Others say that it’s an ongoing conversation with no concrete decisions being made quite yet.
What is clear though is that while the U.S. continues to make life hard for crypto companies, others are cashing in.
It won’t just be its reputation as a crypto hub that it will lose, the U.S. could also face a negative impact on its economy with tech workers taking their disposable incomes elsewhere, as well as a slowdown in the growth of new products and services.
Meanwhile, Europe is welcoming crypto with open arms.
Our resident Web3 expert, James helps customers that are busy changing the world by disrupting traditional frameworks to realize a decentralized future.
Watch out, he practices Brazilian Jiu Jitsu.
