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Searching For the 'Holy Grail' of Crypto Rules
FinTech, Blockchain, Financial Services
When global crypto wallet firm Xapo recently announced at the World Web Forum in Zurich that it was relocating its most important business operations from Hong Kong to Switzerland, Xapo’s president Ted Rogers cited “he search for a better crypto regulatory environment” as the reason for the move, according to Cointelegraph.
When Michael Arrington, a partner at Arrington XRP Capital, revealed on Twitter last year that his firm had been subpoenaed by the United States Securities and Exchanges Commission (SEC) for a second time, Arrington said the firm was now pivoting to Asia and “will not invest in any further U.S. deals until the SEC clarifies token rules.”
What all of these scenarios point to is the critical need for regulators across the globe to finally solve the problem of how to regulate the growing cryptocurrency market, without squelching innovation. As it currently stands, it can sometimes feel like crypto investors are randomly choosing places on a map where they might find friendlier – or at least more transparent – rules, as though they are spinning a globe to find the next country where they want to holiday.
Consider Xapo’s move from Hong Kong to Switzerland: While Rogers said that he sought “a better regulatory environment,” Hong Kong has always been considered one of the friendliest regulatory environments for blockchain and cryptocurrencies. In fact, Rogers even noted that Hong Kong had been “the holy grail of crypto regulations,” but now he says the rules have “become more opaque.”
Xapo’s move to Switzerland makes sense, considering that the country is largely considered friendly to cryptocurrencies (including a flourishing ICO market); in fact, the Swiss city of Zug has famously been dubbed “Crypto Valley” because it serves as a significant hub for crypto and blockchain development. And yet, even Switzerland has suffered some attrition within its thriving crypto ecosystem because tightening regulations of the ICO market have begun to drive people away from the country.
To be sure, some countries have been better at trying to wrestle with crypto regulations than others: The U.S. is largely seen as one of the least friendly – or most opaque, to borrow Rogers’ word – when it comes to regulating the space. Here is CoinDesk‘s Noelle Acheson describing the differences between how the U.S. and Europe are approaching cryptocurrency regulations:
While the U.S. Securities and Exchange Commission (SEC) is contemplating the bigger picture and working on drawing up sector-wide rules, it is also passing judgment and handing out punitive fines. Last year saw 18 digital token-related actions from the SEC, compared to five in 2017.
The European side, however, seems to be more focused on figuring out how to contemplate the bigger picture. It’s thinking about what structure the decision-making process should take. It’s forming committees. Recommendations are flying across the departmental divides, and preparations are being made for the deliberations. It seems to be perpetually thinking about regulating digital assets, rather than actually doing so.
Just this month, two major European regulatory boards – the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) – called on rules for cryptocurrencies and ICOs to be established at the EU level, as CoinDesk reported. Whether or not this satisfies investors remains to be seen until if and when the EU takes up the task, but the push toward clarification in Europe is encouraging.
The bottom line is that that the lack of clarity is not good for anyone. Whether its regulators trying to protect investors; or investors seeking to fund blockchain and cryptocurrency projects; or entrepreneurs who are seeking regulatory environments that are friendly to innovation.
As the markets for cryptocurrencies and blockchain technology continue to push forward toward new innovations across the globe, it’s time for regulators to catch up to them.
Photo: Getty iStock