Interest in crypto assets continues to grow despite the sharp price drops seen last year and the various scandals that have engulfed the industry. The likes of Hong Kong, Bermuda and the United Arab Emirates (UAE) are keen to develop as crypto hubs. Those ambitions are being helped by the hostile attitude of the US and the continuing uncertainty about the sector among the regulatory authorities in the UK.
The global race to attract the fast-developing crypto industry
The global race to attract crypto assets
On 1 June, Hong Kong introduced a new regulatory regime for virtual assets that enables retail investors to trade major digital tokens at licensed crypto exchanges. The development marks the first step in the territory’s ambitions to become a major crypto hub.1
But it is not just Hong Kong that is bidding to become a global centre for digital assets. As cryptocurrencies continue to become a bigger part of the global economy, more and more governments are exploring ways to regulate the industry and construct rules for firms operating in the space. Significant recent regulatory developments include the European Parliament’s approval of the Markets in Crypto-Assets (MiCA) regulations on 20 April.
Meanwhile, Switzerland has emerged as a global leader in the blockchain and crypto arena. The country’s excellent regulatory environment, stable political climate and robust financial infrastructure have made it an appealing destination for both blockchain startups and investors, according to the publication Arabian Business.2
The UAE is also eager to attract crypto firms as part of its ambitions to diversify the economy away from hydrocarbons. Authorities there are seeking to strengthen regulation after accusations that the Emirates were becoming a haven for Russian money.3
Turnover in cryptocurrencies ($ billion), 2017-2027
US crackdown to backfire?
The UAE and other crypto centres are benefitting from the US’s crackdown on crypto. In June, the US Securities and Exchange Commission (SEC) ‘took aim at the most powerful force in the world of cryptocurrencies’, according to The Guardian.4 The US financial watchdog accused the crypto exchange Binance of operating a ‘web of deception’. Binance is the world’s largest cryptocurrency exchange, accounting for around 70% of global turnover. The SEC has also launched a lawsuit against another leading crypto exchange, Coinbase. If successful, the lawsuits would assert the SEC’s jurisdiction over an industry which for years has argued that tokens do not constitute securities and should not be regulated by the Commission. But the move could also completely drive the crypto industry out of the US and into those countries that are so keen to attract it.
The crypto publication CoinDesk, for example, quoted Jason Allegrante, Chief Legal and Compliance Officer at the infrastructure firm Fireblocks, as saying:
‘Regulatory pressure does create an incentive for exchanges to move overseas; for the digital asset industry specifically, it’s a much easier shift because there are no factories to move.’
CoinDesk added that Coinbase recently announced it had received a licence to offer its services in Bermuda, where it reportedly plans to set up a crypto exchange. The exchange is also in talks with the authorities in Abu Dhabi about opening a regulated exchange. Coinbase CEO Brian Armstrong said that crypto firms will develop in offshore havens such as Bermuda unless the US and other countries create ‘clarity about regulation’ for crypto.5
Regulatory transparency
The call for regulatory clarity – rather than to escape regulation entirely – is echoed by other crypto businesses. That certainly makes sense, given that a lack of regulation will do little to improve the reputation of an industry already battered by a series of scandals. While many countries are eager to provide certainty, however, others still seem unsure how to approach the industry.
That confusion is best summed up by the situation in the UK. In May, the Treasury Select Committee issued a report calling for bitcoin, ether and other ‘unbacked’ cryptocurrencies to be regulated as gambling, given the significant risks they pose to consumers. However, the finance ministry responded by ‘firmly’ disagreeing that unbacked crypto assets should be regulated as gambling rather than as a financial service.6
The danger is that by the time the UK, the US and others have decided on which regulatory approach to pursue, the industry will be firmly established elsewhere.
1 https://asia.nikkei.com/Spotlight/Cryptocurrencies/Hong-Kong-opens-crypto-exchange-licensing-ahead-of-retail-trading
2 https://www.arabianbusiness.com/resources/blockchain-and-crypto-hub
3 https://www.al-monitor.com/originals/2023/07/bahraini-cryptocurrency-firm-rain-operate-uae
4 https://www.theguardian.com/technology/2023/jun/06/sec-crypto-crackdown-us-regulator-sues-binance-and-coinbase
5 https://www.reuters.com/technology/us-crypto-exchange-coinbase-secures-bermuda-licence-2023-04-20/
6 https://www.reuters.com/world/uk/britain-rejects-call-regulate-crypto-gambling-2023-07-20/
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