Europe lures crypto firms burned by US

“We want the best framework in the world within which companies can develop,” said Stefan Berger, the conservative German lawmaker who shepherded the EU’s crypto rulebook that comes into force in the second half of 2024. “We want everything you need. needs for a functioning market.”

It’s an argument that no US politician is able to make, with US politicians divided on whether to embrace or discourage the growth of crypto and regulators taking matters into their own hands. The collapse of digital asset exchange FTX only complicated matters, exposing widespread mismanagement in the industry and bringing down former CEO Sam Bankman-Fried, once a major crypto player in Washington. Lobbyists and sympathetic lawmakers are trying to keep pressure on Congress by warning that the United States is falling behind the rest of the world without a clearer set of rules.

At stake is America’s reputation as a promoter of innovation and a global hub for finance. While the crypto world has lost political influence in recent months, the move to the EU provides new motivation for industrialists in Congress to move forward with their agenda.

“The European Union is ahead of us. Switzerland is ahead of us. Australia is ahead of us, Sen said. Cynthia Lummis of Wyoming, a Republican Bitcoin advocate who has drafted a sweeping crypto-regulation bill. “England is ahead of us. So it’s not just second and third world countries.”

The contrast with the EU is stark because US regulation of the industry rests on a mix of state-level rules and licensing that work alongside federal financial safeguards designed for old-fashioned banks, traditional stock trading and commodity exchanges.

Despite the inconsistencies, crypto has flourished for years in the US system – thanks to friendly approaches at the state level and little intervention from Washington.

But the sector is beginning to face a sweeping crackdown by federal agencies that have lost patience with what they see as a blatant display of traditional financial regulations for investing and lending.

“We feel a crypto carpet bombing moment, where they seem to be trying to throw everything they can within their authority — or potentially overstep their authority — and we think that’s short-sighted,” said Kristin Smith, executive director of the Washington-based Blockchain Association. “We think it’s bad for America’s competitiveness.”

The EU’s openness to crypto is a striking reversal: The Europeans made their new rules after freezing out the industry when Facebook, now known as Meta, announced its Libra digital currency in 2019.

European officials – prompted by fears that big tech would mint private money – effectively stopped the project from starting.

That episode prompted lawmakers to draft industry-specific regulations before similar crypto products could take hold on the continent.

The Markets in Crypto-Assets law that EU policymakers came up with, called MiCA, sets strict rules for stablecoins, a type of digital asset like the now-defunct Libra that is pegged to a national currency or another established financial product. It also creates investor guarantees, capital requirements and corporate governance rules for the wider crypto market. Aides to US lawmakers were in Brussels in recent days to talk to EU officials about the new law.

“Europe is clearly outpacing the US in establishing comprehensive regulatory frameworks for the cryptoasset industry,” said Susan Friedman, international policy advisor at Ripple, a digital currency firm that is mounting a legal challenge to an enforcement case brought by the US Securities and Exchange Commission. We fully expect that Europe will become a natural hub for responsible participants going forward.”

To be sure, some European officials are concerned that the new law will not be sufficient to avert another debacle at a global crypto company like FTX. They want to add more security measures.

“MiCA is a positive step in the right direction, but it is certainly not perfect or complete,” said Ernest Urtasun, Spain’s left-wing Green parliamentarian who helped write the rulebook. “More work needs to be done to respond to the regulatory and supervisory challenges we see today.”

Mark Hays, a senior policy analyst at Americans for Financial Reform, said parts of the EU regime may be more permissive in the crypto industry’s eyes compared to “the simple effort that’s going on in the US to simply apply the rules that exist.”

“The tension between the European Commission, the Council and the Parliament means that EU rules are particularly complicated and it is an environment in which industry lobbyists thrive,” Hays said.

In the US, the pressure from the crypto industry falls flat with the skeptics in Congress, who are unfazed by the prospect of Europe taking market share. And some leading crypto firms say the EU is still not a welcoming place to operate.

“Crypto, it’s not like it’s creating that many jobs,” Senate banking chief Sherrod Brown (D-Ohio), a digital currency critic, said in an interview. “Companies always threaten to offshore when they game the system.”

Dante Disparte, chief strategy officer and head of global policy at stablecoin issuer Circle, said he would take the US regulatory ambiguity “over the almost five years of hurry up and wait the Europeans have embarked on” as he drafts and implements his new law.

Disparte speaks from experience. He was one of the leaders of Facebook’s Libra project, which EU officials stopped from getting off the ground.

“You may not like that America is stuck in a fintech constitutional crisis that protects and preserves the states as laboratories for fintech innovation in the country,” he said. “But it’s a powerful feature and not a bug.”

Eleanor Mueller contributed to this report.