The US needs to act on cryptocurrencies. Adek Berry—AFP via Getty Images
Washington must act now to save the U.S. cryptocurrency industry – the time is running out.
The global battle for crypto talent and investment is trending away from the United States in favor of more welcoming countries. Luckily, it is not too late for the US to regain its footing, find a way to embrace cryptocurrencies, and regain control of the race for developer talent and venture capital investment, but it will be over soon.
Currently, the United States is struggling to create a legal system that can foster cryptocurrency innovation while protecting consumer and financial stability. Since the demise of FTX, the Securities and Exchange Commission has taken a hostile view of the crypto industry, stepping up enforcement and threatening the existence of listed companies. The Biden administration has also targeted cryptocurrencies, naming the industry as subject to a proposed 30% tax on energy use by crypto mining operations. The mood in the United States is deteriorating, and many crypto entrepreneurs hope the political winds will turn after the 2024 election.
In contrast, the EU has adopted a more proactive approach, aiming to create a regulatory environment conducive to growth and technological progress. The recently ratified Market for Crypto Assets (MiCA) gives the European cryptocurrency industry a viable licensing regime. It’s not perfect, it’s not NFT- or DeFi-ready, but at least it’s a set of laws that spell out traffic rules so EU companies and entrepreneurs can see how the EU deals with their industries. No need to guess what you’re going to do.
In the United States, developer talent is now migrating to more crypto-friendly jurisdictions. According to venture capital firm Electric Capital, the U.S. has lost 2% annual share of the blockchain developer market over the past five years, dropping its market share to 29%. The share of developers within the EU is also equal for the first time, with him at 29%. Part of this reflects the increasingly global nature of the crypto industry, which allows talented developers to live wherever they want. However, there is no denying that the US regulatory landscape is driving this change.
VC investment in cryptocurrency startups in the region has also surged due to perceived regulatory advantages in the EU. Venture capitalists are actively seeking opportunities in countries with established regulatory frameworks. In the first quarter of 2023, the EU and UK overtook the US in total VC investment in cryptocurrencies. This transition coincides with the passage of his MiCA framework, giving the EU his two feathers in the cryptocurrency cap. Of course, VC fundraising is trend-driven, and this recent shift does not necessarily represent a permanent shift in investment theory.
But as grim as the current situation in the United States is, all is not lost.
The next 12-18 months will determine whether the EU can solidify its leadership in the race for crypto VC investment and developer talent. During this period, EU bureaucrats will consider how to implement MiCA reforms and research will continue on how to regulate NFTs and DeFi.
This period also coincides with preparations for the 2024 U.S. elections, a time when many top regulators have resigned and personnel changes have taken place within the government.
These and other political developments in the US may cause the federal government to view cryptocurrencies in a more sensible way. What is clear now is that alarm bells are ringing for the future of cryptocurrencies in the United States. As the U.S. clamps down, other countries are seizing the opportunity, which could have long-lasting implications for industries around the world.
Christine Smith is the Executive Director of the Blockchain Association. The opinions expressed in commentary articles on Fortune.com are solely those of the authors and do not necessarily reflect the opinions or beliefs of the authors. luck.