“We will have the best framework in the world in which companies can develop,” said Stefan Berger, the conservative German lawmaker who shepherded the EU crypto rulebook that will come into force in the second half of 2024. “We will have everything that you need for a workable market.”
It’s an argument that no U.S. policymaker is in a position to make, with American politicians at odds over whether to embrace or discourage the growth of crypto and regulators taking matters into their own hands. The collapse of the digital asset exchange FTX only complicated matters, revealing widespread industry mismanagement and taking down its former chief executive Sam Bankman-Fried, once a major crypto player in Washington. Lobbyists and sympathetic lawmakers stateside are trying to keep pressure on Congress by warning that the U.S. 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 clout in recent months, the advancement of the EU is providing fresh motivation for industry allies in Congress to press ahead with their agenda.
“The European Union’s ahead of us. Switzerland’s ahead of us. Australia’s ahead of us,” said Sen. Cynthia Lummis of Wyoming, a Republican Bitcoin advocate who has drafted a comprehensive crypto regulation bill. “England’s ahead of us. So it’s not just second- and third-world countries.”
The contrast with the EU is clear because the U.S. regulation of the industry rests on a melange of state-level rules and licensing that operates alongside federal financial safeguards designed for old-school banks, traditional stock trading and commodity exchanges.
Despite the inconsistencies, crypto has flourished for years in the U.S. system — thanks to friendly state-level approaches 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 flagrant flaunting of traditional financial regulations on investments and lending.
“We’re feeling a crypto carpet-bombing moment, where they seem to be trying to throw whatever they can within their authority — or potentially exceeding their authority — and we think that’s shortsighted,” said Kristin Smith, CEO of the Washington-based Blockchain Association. “We think it’s bad for U.S. competitiveness.”
The EU’s openness toward crypto is a striking turnaround: the Europeans crafted their new rules after essentially freezing out the industry when Facebook, now known as Meta, announced its Libra digital currency in 2019.
European officials — prompted by fears of big tech minting private money — effectively stopped the project from launching.
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, dubbed MiCA, sets strict rules for stablecoins, a type of digital asset like the now-defunct Libra that’s anchored to a national currency or other established financial product. It also creates investor safeguards, capital requirements and corporate governance rules for the broader crypto market. Aides to U.S. lawmakers were in Brussels in recent days to talk with EU officials about the new law.
“Europe is clearly outpacing the U.S. by establishing holistic regulatory frameworks for the cryptoasset industry,” said Susan Friedman, international policy counsel at Ripple, a digital currency firm that’s mounting a legal challenge against an enforcement action brought by the U.S. Securities and Exchange Commission “We fully expect Europe to become a natural hub for responsible participants going forward.”
To be sure, some European officials are concerned that the new law isn’t sufficient to head off another debacle at a global crypto company like FTX. They want to layer on additional safeguards.
“MiCA is a positive step in the right direction, but it is certainly not perfect or complete,” said Ernest Urtasun, Spain’s left-leaning Green parliamentarian who helped write the rulebook. “More work needs to be done to respond to the regulatory and supervisory challenges we are seeing today.”
Mark Hays, a senior policy analyst at Americans for Financial Reform, said parts of the EU regime may be more permissive in the eyes of the crypto industry compared to “the straightforward effort underway in the United States to simply apply the rules that exist.”
“The tension between the European Commission, the Council and the parliament means that EU rules are especially complicated, and that’s an environment in which industry lobbyists thrive,” Hays said.
In the U.S., the pressure from the crypto industry is falling flat with its skeptics in Congress, who are unfazed by the prospect of Europe taking market share. And some top crypto firm players say the EU still isn’t a welcoming place to operate.
“Crypto, it’s not like it provides that many jobs,” Senate Banking Chair Sherrod Brown (D-Ohio), a digital currency critic, said in an interview. “Companies always threaten to offshore when they’re gaming the system.”
Dante Disparte, chief strategy officer and head of global policy at stablecoin issuer Circle, said he would take the U.S. regulatory ambiguity “over the near five years of hurry up and wait the Europeans have embarked on” while drafting and implementing their 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 might not like that America is stuck in a fintech constitutional crisis that protects and preserves the states as the laboratories of fintech innovation in the country,” he said. “But that’s a powerful feature and not a bug.”
Eleanor Mueller contributed to this report.
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