The cryptocurrency world is watching the US to see if recent regulatory developments in the industry could force some long-awaited clarity on how to operate a cryptocurrency business. The market received a confidence boost in June, thanks in large part to a move by asset manager BlackRock to launch a spot bitcoin ETF, after six months of the SEC cracking down on the industry. However, the path to regulatory clarity is still unclear, and investors are concerned that as Washington dawdles with cryptocurrencies, the US is losing its competitive edge against the rest of the world. Others, however, say that is far from the case. "[Europe] it's certainly a step ahead of the US with the framework they set," Galaxy Digital CEO Mike Novogratz said on his company's earnings call earlier this year. "Hong Kong is becoming more crypto-friendlyโฆ And then places like Abu Dhabi and Dubai really pushing the envelope to create a robust crypto regulatory infrastructure and I think you'll see companies migrate there." It's already on the move. In April, Coinbase CEO, Brian Armstrong said his company would consider moving outside the U.S. It has already received a license to operate in Bermuda and is in talks with UAE regulators to set up operations in Abu Dhabi Shortly after, Gemini announced plans to expand its presence in Asia Appointed a regional CEO and established its second largest engineering center, behind the US, in Gurgaon, India Last month, stablecoin issuer Circle established a regional headquarters in Singapore after receiving a Master Payment Institution license to offer digital payment token services and cross-border money transfer services. And, on that same earnings call earlier this year, Novogratz said Galaxy hired some Hong Kong-based traders. "We're very excited about it," he said. "We believe this is a global business and our intent is to continue to grow outside of the US at a much faster rate than we were growing in the US. Most of that is regulatory, but a lot of it is also a opportunity. โฆ Asian markets adopt cryptocurrencies, there's rapid adoption there. And now, we're seeing more and more in the Middle East and Europe.โ Other Jurisdictions Are Winning While the United States is currently embroiled in political and regulatory battles, discussing the future of the crypto industry, other countries are luring companies in by providing clearer guidelines and adapting to innovation. Just this week, Societe General's crypto arm received approval from France's financial regulator to offer crypto services, including crypto assets. The European Union approved the Markets in Crypto Assets (MiCA) legal framework for issuing and trading cryptocurrencies in May. Next month, Hong Kong implemented a new licensing regime for crypto exchanges to serve retail customers. And last year, Dubai created the Virtual Assets Regulatory Authority (VARA), an independent regulatory body for "virtual assets." The United States is going to "slowly but surely put regulation in place, it's just that it's been more piecemeal than the [Financial Conduct Authority] in the UK, for example, which is now beginning to establish a framework," said Cantor Fitzgerald's Elliot Han. Hong Kong, in particular, has tried to position itself as an international hub for cryptocurrencies. It is pushing its banks to open accounts for cryptocurrency businesses and creating crypto-friendly rules." US Exchanges, COO of Cobo, a Singapore-based crypto-custody provider, said she credits Asian governments for providing clear regulatory requirements and comprehensive, as well as embracing "top-down practical efforts" that enable collaboration and dialogue to support innovation and establish necessary oversight. The downside is that the market is smaller and Hong Kong cannot attract capital like Silicon Valley, said Owen Lau, an analyst at Oppenheimer. However, money is already moving out of the US, he added, citing venture capital giant Andreessen Horowitz's June announcement that it will open its first non-US office in London, betting that the UK will become a crypto hub. โWe are slowly losing and other jurisdictions are winning,โ he said. "At this point, I still think we can fix it if we get the regulation right... The problem is how much extra leeway we have... if the damage is already done, it's very hard to reverse it." Galaxy chief investment officer Chris Ferraro echoed that sentiment in a recent โCrypto Worldโ interview. "I'm optimistic that we'll get it right," he said. โI fear that the United States is taking its time, and while that is happening, rigid capital and rigid intellectual capital are being formed in other parts of the world, and then it is difficult to undo it.โ Lots of Talk, Little Action At first glance, on trading day it looks like assets are leaving the US for exchange abroad. US exchanges, including Coinbase Pro, Gemini, Bittrex, Gate.io, Poloniex, and Kraken, led the rest of the world in bitcoin reserves, but were ousted from that position around June 2022, according to CryptoQuant. That was long before the regulatory crackdown began to take hold, but when cryptocurrency lenders began to collapse like dominoes and investors lost confidence in the industry. International exchanges, including Binance, Huobi Global, OKX, Bitfinex, FTX, Bybit, KuCoin, BitMEX, and Binance Pegged, have seen steady growth ever since, reaching around 1.2 million BTC in July and leading US exchanges with 660,000 BTC. Just over 50% of bitcoin exchanges are outside of the US Han noted that Huobi, Binance and OKX have always been among the largest exchanges and noted that cryptocurrencies have a large user base outside of the US The US also suggested that some crypto whales, traders who hold sums of cryptocurrency large enough to influence the market with their transactions, might have been spooked by regulatory pressure from the US. The US has been high, but so far there's a lot of talk and not a lot of action, according to Han. "A lot of these companies have said 'we're being suppressed by US regulation, we may have to start thinking to move'... but I don't think anyone is building a massive headquarters in Hong Kong or London or Berlin or anywhere else," he said. "It's more that they could put some boots on the ground, one or two people just to plant the flag and say they have a presence in that area." As each quarter goes by, if regulation gets tighter and makes it harder to do business in cryptocurrencies, they might add other people or move certain lines of business, he explained. If they already have people in place, it will make their lives a little easier. "I don't see anybody spending tons of money to build a huge office in another area when, frankly, we don't know what's going to happen with regulation here in the US, and I think that's where the frustration lies," he said. he. "People are holding out hope until the last possible minute," he added. "If the US said something like China and said we're going to ban all cryptocurrency, all cryptocurrency mining, all cryptocurrency trading, then that's another story, I don't think we'll get to that stage."
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Investors are worried the U.S. is losing its crypto edge as regulators crack down. Hereโs why those fears may be overblown