June 9, 2023 at 09:42 GMTModified date: June 9, 2023 at 09:42 GMT
June 9, 2023 at 09:42 GMT

Why the US’s loss is the rest of the world’s gain

The SEC’s new crackdown has raised questions concerning America’s commitment to shaping the crypto landscape. But it’s proving profitable for other countries.

Why the US’s loss is the rest of the world’s gain

The United States in years past has established itself as a prominent technology hub by fostering an environment that nurtures tech start-ups to become the biggest corporations on the planet like Facebook, Amazon and Apple to name but a few.

Through constant investment in research and development, America has continued to encourage technological advancements and the entrepreneurial culture that pioneer them.

It’s what makes America, well, America.

The US has also consistently proved its commitment to making the country a hotbed for talent and businesses in science and technology through initiatives like the National Science Foundation (NSF) and Small Business Innovation Research (SBIR). 

However, recent events in the blockchain industry have raised question marks concerning the United States’ devotion to shaping the digital and technological landscape.

This week, the Securities and Exchange Commission continued its hot-pursuit of industries in the crypto world with fresh lawsuits against Binance and its founder, Changpeng ‘CZ’ Zhao and Coinbase. SEC alleged that Binance Holdings Ltd., BAM Trading Services Inc., and CZ violated securities law in its 13 charges against Binance.

These charges include operating unregistered exchanges, misrepresenting trading controls and oversight, conducting unregistered offers and sales of securities. The SEC further alleged that Binance and Zhao engaged in deception, conflicts of interest, calculated evasion of the law, misleading investors and disregarding regulations.

Coinbase were similarly handed regulatory problems of their own as SEC accused the exchange of operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency. It also charged Coinbase for failing to register the offer and sale of its staking-as-a-service program.

United States faces being left behind

Numerous complaints from industry companies highlight the pressing issue of an undefined regulatory framework in the industry, which is often cited as the root cause of the onslaught of lawsuits.

As a relatively young sector, the absence of clear regulations has undeniably posed significant challenges for businesses attempting to navigate the intricate regulatory landscape. The information vacuum leaves a cloud of uncertainty hanging overhead and critical questions about the applicability of existing regulations unanswered. This state of ambiguity creates potential obstacles for companies operating within this realm, further amplifying the need for a well-defined regulatory framework.

In 2021, Ripple CEO Brad Garlinghouse – one of the first victims of the SEC’s avalanche of lawsuits – expressed his frustration at the lack of well-defined regulatory framework in the United States, comparing it to Asian giants such as Korea and Singapore.

Two years down the line, not much has changed. CZ described the lack of regulatory clarity as ‘the worst’ in April this year and an excerpt from the company’s statement in response to the lawsuit further expressed disappointment in the SEC’s blatant disregard of calls for clarity in regulations.

‘Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry.

Brian Armstrong of Coinbase, yet another high-profile industry personality, in a tweet highlighted the conflicting statements of the Commodity Futures Trading Commission (CFTC) and SEC on the definition and classification of securities. He lashed out at the SEC for taking a “regulation by enforcement” approach instead of publishing clear rules. 

The reasons behind the US and SEC’s reluctance to establish clear regulations remain uncertain. However, given the numerous appeals made, one could reasonably speculate that there might be an underlying intention to impede the industry’s progress and development.

Charles Hoskinson of Cardano is of this opinion. He tweeted that the barrage of lawsuits is part of a scheme to develop a Central Bank Digital Currency (CBDC) which will ensure reliance on centralised entities. 

While America lags behind in its support for blockchain-based companies, the rest of the world is forging ahead, and blockchain companies are also keen on making strides in their progress, even if that means seeking new pastures.

Crypto companies seek ‘greener’ pastures 

Former Seattle-based exchange, Bittrex, recently announced its departure from the United States as it filed for bankruptcy and ceased its operations. This decision came shortly after the SEC accused the exchange of operating without proper registration as a securities exchange.

Bittrex’s move is seen as significant, as it is one of the first prominent exchanges to take such action, leading many to speculate that it could potentially inspire other struggling companies in the industry to follow suit. Coinbase is also sounding the alarm on a potential exit from the United States, with Brian Armstrong hinting that the company could relocate to the United Kingdom if the regulatory situation does not improve. 

Two other crypto powerhouses, Gemini and Crypto.com are making plans to establish a foothold in blockchain-friendlier jurisdictions. Gemini, owned by the Winklevoss brothers, announced expansion plans to acquire a licence which will enable it to operate in the United Arab Emirates and recently chose Ireland for its new European headquarters. Meanwhile, Crypto.com recently completed its licensing process in Singapore. 

With the SEC hot on the heels of crypto lender Nexo and P2P trading platform, Paxful, it wouldn’t be surprising to see them follow the footsteps of other influential players who are rapidly expanding their operations overseas. Late last year, the former had already hinted at the possibility after negotiations with regulators reached a ‘dead end’.  

Hong Kong, UK opens doors 

Meanwhile, Hong Kong and the United Kingdom are strategically positioning themselves as the new blockchain hubs as companies continue to search for friendlier environments and regulatory clarity. 

Late last month, Hong Kong released new rules, allowing retail traders to trade cryptocurrencies on licensed exchanges. The move is already yielding dividends according to Hong Kong’s securities regulator who claim that they have “already received a handful of applications”. Amongst these applicants are Huobi and Gate.io, who have applied for virtual asset licences with the former becoming the first member of Hong Kong Virtual Assets Consortium on 31 May. 

The UK has also taken significant steps to welcome and accommodate industries operating in the crypto space lately. The All Party Parliamentary Group (APPG) for Crypto & Digital Assets earlier this week released a comprehensive report on the potential opportunities and challenges associated with the UK government’s goal of becoming a global hub for crypto and digital assets.

The report emphasised the need for regulation to safeguard consumers and foster investment and economic growth in the rapidly expanding cryptocurrency and digital asset sector. It also highlights the opportunities in the UK and its potential to be a global leader in the cryptocurrency and digital asset market.

As the SEC tightens its grip on the US crypto industry with lawsuits, countries like Hong Kong, the UK, and Ireland are taking a leap of faith and diving headfirst into the world of digital assets. It seems like one country’s loss is another country’s gain after all.