Global Relinquishment makes regulating crypto inside public deals futile.
Crypto assets have become a global phenomenon and many countries are trying to get their piece of the pie. However, as the worldwide adoption of crypto assets continues to rise, it becomes increasingly difficult for any one country to regulate them within its own borders. This is because crypto-assets exist outside of traditional financial systems, and as such, no institution or jurisdiction can easily enforce national regulations. This leaves governments struggling to find a solution that satisfies everyone involved.
It is no secret that the United States and Europe are two of the most powerful countries in the world. They possess a lot of economic and political clout, which has enabled them to steer the global economy for many years. However, their grip on the world is not unchallenged. With the growth of cryptocurrencies, especially in the past few years, other countries have started flexing their muscles. And when it comes to cryptocurrencies, it doesn’t matter whether you are in Europe or the United States- they will try and regulate it.
Crypto is keeping lawmakers busy on both sides of the Atlantic.
They really should be working together – and, for that matter, with other legislators around the world. A more borderless approach is needed when you’re dealing with a technology that pays scant regard for borders.
In the past month, U.S. senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) announced their co-sponsorship of comprehensive crypto legislation, Sen. Pat Toomey (R-Pa.) filed a detailed proposal for regulating stablecoins, and five Democratic congressmen introduced the Electronic Currency and Secure Hardware (ECASH) Act. to develop a cash-like digital dollar.
Meanwhile, in Brussels, the European Union’s landmark Markets in Crypto Assets (MiCA) legislative framework has moved to “trialogue” discussions among the European Parliament, Council, and Commission, with the goal being a single model for licensing providers of crypto asset services that “passport able” across all 27 EU member states. After a knife-edge vote last month, the bill was stripped of draconian provisions that would have prohibited proof-of-work mining on environmental grounds and are now heavily focused on stable coins.
From the crypto community’s perspective, there are pros and cons to these different U.S. and European approaches. But it all could be a moot point. Developments outside of the big Western economies are a reminder that crypto is global by nature and will grow wherever it faces the least resistance. That raises huge implications for whatever decisions to control or manage the industry are taken in Europe and the U.S.
Global adoption
In Africa, for example, a partnership between mega crypto exchange FTX and Nairobi-based AZA Finance is poised to open a network of on- and off-ramps for Africans using a variety of national currencies to engage with Web 3 commerce and systems.
This comes as crypto activity in Africa is booming. According to Chainalysis’s 2021 global crypto adoption index, Kenya and Nigeria – with a combined population of around 260 million people – were ranked fifth and sixth in the world, respectively. As of June last year, Nigeria was the biggest market for Paxful, a leader in peer-to-peer crypto payments, accounting for 1.5 million users. And as we learned in an episode of our “Money Reimagined” podcast last year, crypto innovation hubs are thriving in Lagos, Kenya, Johannesburg, and Cape Town, with decentralized finance (Defi) and non-fungible token (NFT) projects taking off everywhere.
Meanwhile, the biggest exchanges are rushing to set up shop in the Middle East. Binance recently obtained relatively liberal licenses to operate in Bahrain and Dubai and has received approval in principle to operate as a broker-dealer in Abu Dhabi, with new accommodative laws being established in the United Arab Emirates. Around the same time, FTX got a Dubai license.
And let's not forget what’s happening in Ukraine. Even before the Russian invasion, which prompted an unprecedented inflow of crypto funds into Ukraine to support both the war effort and humanitarian causes, Ukraine was a world leader in adoption. Now, with President Zelenskyy hurrying through a new law legalizing cryptocurrencies, it is perhaps the world leader in crypto usage.
Crypto is a slippery target for regulators
If you’re a crypto developer, these places are where the action is right now. Not only are they friendlier regimes, but the rapid pace of adoption there is creating a virtuous circle of growth that’s encouraging developers to offer profitable crypto services.
And because digitally nomadic developer teams don’t even need to physically move to such places to take advantage of these opportunities, the speed with which they are seized upon is very fast indeed.
What this means is that, independently of efforts by the U.S. and EU to contain and manage the development of cryptocurrency services, the wider ecosystem around crypto will continue to develop and grow.
Whether it does so in a way that is beneficial to the U.S. or E.U. is by no means assured, however.
Indeed, the argument that killed the attempt to impose an EU ban on proof-of-work mining was that it would create opportunities for greenhouse gas-producing energy providers to woo bitcoin miners to their locations – Kazakhstan’s coal-based mining boom being a case in point. If the goal of regulation is to achieve some benefit for the world at large – which is the case for any climate-related rules – then its designers have to be wary of such perverse.
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