Cryptocurrencies have been around since the creation of Bitcoin in 2009. Since then, the industry has grown rapidly with new coins and tokens being created every day. The United States has been one of the biggest players in this industry, setting the trend for regulations, technology, and innovation. However, with recent developments in other countries, it seems as though the U.S. may be losing the race for crypto innovation.
China, for example, has been making strides in developing its central bank digital currency (CBDC) called the Digital Yuan. The country has been testing the use of this currency in various cities and is even planning to use it during the 2022 Winter Olympics in Beijing. The Digital Yuan has been described as a game-changer for the industry as it will provide both the government and users with more control over financial transactions.
This move by China has sparked talks about the U.S. potentially falling behind in the race for the world’s leading economy. Even more so, the European Union has also been making progress with its own form of digital currency. Christine Lagarde, the president of the European Central Bank, has announced that they are working on creating a digital Euro that would roll out in the next five years.
The U.S. has been struggling to keep up with this pace, with little to no progress being made towards creating its own digital currency. There have been talks about creating a Digital Dollar, however, nothing concrete has been presented yet. This lack of progress puts the U.S. at a disadvantage as it means they will not be able to compete with other economies that are embracing these innovative technologies.
Another area where the U.S. is losing the race for crypto innovation is in the regulations surrounding cryptocurrency. The U.S. has been known for its strict regulations and rules when it comes to cryptocurrencies. This has caused many cryptocurrency companies to move their headquarters out of the U.S. to more crypto-friendly countries. This is not only costing the U.S. potential innovation, but it is also costing them millions of dollars in revenue that could be flowing into their economy.
The lack of regulations in many other countries has allowed for these countries to become leaders in the industry. For example, Switzerland has become a hub for cryptocurrency startups due to its flexible and welcoming regulations. This has helped to foster an environment where innovation can thrive, leading to some of the most popular cryptocurrencies being created in Switzerland.
In conclusion, the U.S. is losing the race for crypto innovation due to its lack of progress in both the technology and regulatory aspects of the industry. While other countries, such as China and the EU, have been making significant advancements, the U.S. has been stuck in its conventional ways. This lack of progress puts the U.S. at a disadvantage as it means they will not be able to compete with other economies that are embracing these innovative technologies. The U.S. needs to start adapting to these changes and create an environment where innovation can flourish, or they risk being left behind in the crypto race.
Crypto innovation in the United States is at risk of being lost due to strained relationships with the Securities and Exchange Commission (SEC), according to Charlene Hill Fadirepo, CEO of Mango Digital Strategies. Speaking at the WealthManagement EDGE Conference, Fadirepo compared the current state of crypto in the US to the development of the internet, where the country was a leader in innovation. However, the country is now losing ground to areas like Dubai, Malta, and Singapore, which are positioning themselves as crypto hubs with more attractive tax environments.
Fadirepo warned that companies may choose to leave the US due to compliance issues with the SEC. Companies with significant staff for compliance and policy strategy may be able to afford to fight enforcement matters, but others may opt to leave. Failing major crypto exchange FTX prompted Washington regulators to consider intervening, but it is “untenable” in the long run for regulators to act as if everything remotely crypto-related functions as a security, said Mercedes Tunstall, partner, Cadwalader, Wickersham & Taft.
Tunstall suggested registering as a solution for exchanges, but many struggled to find a place where they could properly register. She noted many financial institutions are looking at Coinbase’s recent Wells notice scuffle with the SEC as a signal that companies are pushing back on what they perceive to be “regulation by enforcement.” Tunstall said there is a sense in the industry that American companies will no longer tolerate a lack of rules to play by.
Speaking before Congress, SEC Chair Gary Gensler stressed that the commission’s ability to investigate crypto violations was “stretched thin.” He argued that while the crypto field was small compared to capital markets overall, it had an outsized number of compliance issues. A CoreData report from last month suggested that 70% of advisors think there will be more cryptocurrency failures this year than in 2022, with 26% expecting it to fall apart on a greater scale than the aftermath of the FTX fiasco in November 2022.
In conclusion, strained relationships between crypto players and the SEC in the US are likely to result in significant consequences for the country’s ability to foster an innovative crypto environment. Crypto exchanges are struggling to find a place where they can properly register, leading many to opt-out altogether and move to other crypto-friendly jurisdictions. However, financial institutions are pushing back against “regulation by enforcement,” and there is a sense among industry members that American companies will no longer tolerate the lack of rules to play by. It is clear that a stable regulatory environment will be key if the US is to reclaim its position as a global crypto leader.
