The US crypto space is in disarray. In March, its foreshadowing was already in full view when the prestigious law firm Cooper & Kirk, published the paper Operation Choke Point 2.0: Federal Banking Regulators Are Coming For Crypto.
Has the US Market Become So Hostile It Necessitated a Crypto Exodus? If so, what other jurisdictions are poised to attract innovators, builders, and entrepreneurs to the FinTech and crypto space?
First, let’s take a look at the current crypto landscape.
Deployment of systemic uncertainty
Even before Operation Chokepoint 2.0 became clearer, it was rather telling that the SEC refused to approve even a single Cash Traded Bitcoin ETF. As for the cornerstones of market liquidity, that would be it.
Instead, regulators chose to drain liquidity. Crypto-friendly banks were the first to fall – Silvergate and Signature – albeit under suspicious circumstances, which Cooper & Kirk lawyers found indicative of “overregulation against the crypto industry.” cryptography”.
Meanwhile, the Securities and Commission Exchange (SEC) has been on a rampage throughout 2023. The watchdog has filed lawsuits against Bittrex, Kraken, Gemini, and Paxos, with the knockouts against Binance.US and Coinbase.
Charging Coinbase as an unregistered stock exchange seems to have opened the floodgates of legal uncertainty. The SEC approved the exchange’s underlying business model, a prerequisite for an IPO under the ticker COIN in April 2021. However, as Coinbase expanded its crypto offering, the Views of the SEC part of its offer as “crypto asset securities”:
Simultaneously, the SEC did not provide clarity when previously asked. This seems to be the agency’s bet to establish application rules, taking advantage of the current legislative void. As Coinbase takes the SEC to court to clarify titles, the damage is already underway.
Robinhood will remove major cryptocurrencies Cardano (ADA), Solana (SOL), and Polygon (MATIC) on June 27, with more chances to follow according to the SEC’s interpretation. Binance.FR stopped all deposits in USDwhile Crypto.com closes its institutional exchange.
The legal uncertainty then unleashed a torrent of liquidity, reducing the total crypto market capitalization by $55 billion since Friday. As FUD cements the US crypto space, which crypto-friendly regions are likely to benefit the most?
European Union (EU)
Although having officially entered a recession, the Eurozone is the first major region to adopt a comprehensive legal framework on digital assets. According Eurostatthis market represents approximately 14% of world trade, alongside China and the United States in the top three.
European crypto-asset market regulations (MiCA) will come into effect from June to December 2024. With this clarity, Ripple CEO Brad Garlinghouse has singled out Europe as a “significant beneficiary of the confusion that has existed in the United States”. a recent CNBC Interview.
Similarly, Coinbase Chief Legal Officer Paul Grewal sees the US crypto crackdown as an “incredible opportunity” for Ireland and Europe, speaking to the Irish Independent.
After years of preparation, MiCA has taken a balanced and proactive approach to crypto regulation. On the one hand, innovations are encouraged, while financial stability and consumer protection are taken into account. Here are some of the keys Mica highlights to consider:
- Digital assets exist on a spectrum ranging from electronic money tokens (EMT) and asset-referenced tokens (ART) to crypto-assets and utility tokens.
- Depending on their market capitalization, the requirements differ. For example, small cap and utility tokens are exempt from providing a white paper (responsibility, technology, marketing).
- However, suppose an ART (stablecoin) or EMT exceeds certain thresholds, such as a market capitalization of 5 billion euros, 10 million holders or 2.5 million daily transactions exceeding a volume of 500 million euros. In this case, they become “significant” gatekeepers to be regulated under the Digital Markets Act (DMA).
- All crypto companies are licensed as CASPs (crypto-asset service providers), maintaining a minimum liquidity threshold of €125,000 for custodians and exchanges and €150,000 for trading platforms.
To maintain their licenses with the European Securities and Markets Authority (ESMA), PSAPs must report user transactions. This includes transfers between CASPs and self-custodial wallets if they exceed €1,000. But regardless of the size of the transaction, CASPs must register senders/receivers of wallets hosted under the so-called “travel rule”.
While all of this tracking isn’t ideal, it’s a big step in legitimizing the industry. At least, unlike the United States, where SEC Chairman Gary Gensler recently cover name crypto investors as “thugs, fraudsters, scammers”.
It should also be noted that Switzerland remains an innovation sandbox zone but also interfaces with the euro zone. This is why there are so many leading foundations in Switzerland, such as Tezos and Ethereum.
In the EU itself, many crypto companies have already gone global.
These include the popular options trading platform Deribit in the Netherlands, LocalBitcoins in Finland, DappRadar in Lithuania, and Ledger, the hardware wallet provider in France.
China’s semi-autonomous proxy region, Hong Kong, is back on the crypto menu. Although mainland China banned cryptocurrencies so as not to interfere with the digital yuan, Hong Kong was given the green light for retail crypto trading on June 1.
Of course, this means Virtual Asset Service Providers (VASPs) in Hong Kong must block mainland Chinese retail traders. Every token they list must have high liquidity, be included in two major clues, and have a year of trading. In addition to these basic requirements, VASPs must segregate client assets, set exposure limits, adhere to cybersecurity standards, and avoid conflicts of interest.
The DeFi space can also thrive under the Securities and Futures Ordinance (Type 7 license), with their tokens referred to as futures or securities. Following the new regime, many exchanges rushed to acquire new HK VASP licenses: CoinEx, Huobi, OKX, Gate.io and BitMEX, to name a few.
Interestingly, ZA Bank, the subsidiary of Chinese state-owned Greenland, Hong Kong’s largest digital bank, has also entered the Hong Kong market. e-HKD pilot program initiative. This shows that China is giving the green light to Hong Kong’s adoption of long-term digital assets.
Hong Kong is also extremely generous in the area of crypto taxation. While capital gains tax is waived for taxpayers, businesses are subject to the progressive tax regime of a maximum of 17%.
Another highly developed city-state, Singapore, has been the crypto hub since its inception, driving crypto adoption across the Asia-Pacific region. And for good reason. There is no capital gains tax, which makes it irrelevant if one is selling or trading cryptocurrencies.
Additionally, since the Monetary Authority of Singapore (MAS) classifies them as “intangibles”, cryptocurrencies can be used for payment for goods and services, which are then considered barter. Incidentally, this is very easy to achieve thanks to Alchemy Pay, which originated in Singapore.
That said, the zero tax regime does not apply to businesses. They are subject to a flat corporate tax rate of 17%. But for Hong Kong, Singapore has a three-year tax holiday for start-ups, which is especially helpful for newcomers. businesses that need help building up creditand therefore have limited funding opportunities.
With its financial and social stability, Singapore has served as a crypto magnet. For example, California-based OKCoin opened a store in 2020. Of course, Coinbase and Binance also have offices in Singapore, including Crypto.com.
As Crypto.com rushes to shut down its institutional exchange in the US, citing the “current market landscape”, the aptly named exchange has had no trouble securing a major payment institution (MPI) license of the MAS.
This results in Crypto.com no longer being subject to thresholds for its Digital Payment Token (DPT) services. Given the SEC’s hostile attitude towards these exchanges, it’s safe to say that its fallback position is strong in Singapore.
Finally, Singapore has taken a friendly approach to integrating machine learning and artificial intelligence technology for several years. THE Ministry of Education has already developed AI-powered learning and education systems for students. Of how AI should boost business operations of communication to training and beyond, Singapore has demonstrated a proactive approach using game-changing technology.
With the way AI is expected to integrate and even help the crypto industry, Singapore could become a hotspot for new crypto projects.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Financing in five minutesfor a weekly analysis of major trends in finance and artificial intelligence.