The United States, a global economic titan, seems to be treading water in the vast ocean of cryptocurrency regulations. Despite the tumultuous year for the crypto industry, marked by scam incidents, company collapses, and layoffs, it’s far from its end. However, the narrative that the US government could potentially obliterate the crypto industry persists, fueled by the media and public opinion. This narrative is not only misleading but also detrimental to the progress of blockchain technology in the country.
The Misconception: Crypto’s Apocalypse
The crypto industry’s recent turmoil has been largely attributed to its own failures. Major industry players had initially pledged self-regulation, but the actions of a handful of bad actors over the past year have extinguished any possibility of such a system. The remaining legitimate crypto companies, despite their resilience and continued operation, are often viewed with skepticism and doubt, likened to the living dead of the digital asset sector.
The Reality: Crypto’s Potential
Contrary to these bleak portrayals, the crypto industry is not dead nor dying. It’s merely undergoing a metamorphosis, navigating through the growing pains associated with any revolutionary technology. The potential of blockchain technology is vast, and it’s beginning to permeate various aspects of the global financial system.
Crypto is more than just a new form of currency; it’s a foundational layer for future global commerce, banking, communication, and individual ownership. This is reflected in its widespread adoption, with hundreds of millions of people worldwide using crypto for various purposes and believing in its potential.
The Regulatory Challenge: SEC’s Approach
The Securities and Exchange Commission (SEC) has been heavily criticized for its aggressive approach to crypto regulations. The SEC’s actions, heavily influenced by public opinion rather than a comprehensive understanding of blockchain technology, have been seen as overreaching and heavy-handed, stifling innovation rather than fostering it.
Despite the high stakes, with crypto becoming increasingly integrated into the global financial system, the SEC’s approach remains largely unchanged. This regulatory approach not only undermines the potential of blockchain technology but also puts the US at a disadvantage globally.
The Global Perspective: Crypto Regulations Elsewhere
Other economic powerhouses, such as the EU, UK, Japan, Singapore, UAE, and even China, have introduced or are in the process of introducing comprehensive regulatory frameworks for crypto. The absence of the US from this list is conspicuous, highlighting the country’s lag in addressing this frontier technology at a federal level.
As a result, the crypto industry is rapidly shifting offshore. According to a recent report by Electric Capital, the US’s share of the world’s open source blockchain developers dropped from 42% in 2018 to 29% in 2022.
The Implications: Economic and Technological Consequences
The lack of a fully regulated financial market for crypto in the US contradicts the global economic interdependence observed in other major economies. The risk of losing crypto to other world powers is severe. Imagine if tech giants like Google or Twitter had been founded in a country like China. The internet, as we know it today, would look drastically different.
The Solution: A Path Forward
Despite the slow progress at the federal level, there are promising signs that a clear regulatory framework is on the horizon. A recent draft bill provides a pathway for digital assets that start as securities to eventually be regulated as commodities.
The proposed framework would allow tokens offered as part of an investment contract to remain under the SEC’s purview, while those qualifying as commodities would fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC). There are also ongoing discussions about the classification of an asset as a commodity if it belongs to a decentralized blockchain network.
The Recommendations: Shaping the Future of Crypto
As the US navigates its way towards a comprehensive regulatory framework for crypto, several key considerations come to the fore.
The US government should actively invest in blockchain R&D. The country has a track record of incubating world-changing technology, and this should be no different.
Policymakers should familiarize themselves with the technology. Understanding the fundamentals of the technology they’re regulating is crucial. Other governments, including the European Commission, are already doing this.
The US government should establish a sandbox to experiment with compliant and mutually beneficial ways to engage with the private sector and the technology itself.
Conclusion: The Inevitability of Crypto’s Survival
Predicting the demise of crypto is a misguided narrative. The US, with its history of embracing and regulating frontier technologies, will undoubtedly adapt to the rise of crypto. The industry will only strengthen as meaningful regulations replace the current strong-arm enforcements. The future of crypto in the US is not a question of ‘if’ but ‘when.’