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US crypto crackdown 'an opportunity for the UK'

Brian McGleenon
Mon, November 6, 2023 at 4:51 AM EST·5 min read
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Web3 firms are migrating from the US because of stringent regulatory pressure. Yahoo Finance UK spoke to cryptocurrency exchange platform Coinbase (COIN) about the reasons for the US crackdown, and how it could be an opportunity for the UK to realise its ambition of becoming a global crypto hub.

On this week's episode of Yahoo Finance UK's The Crypto Mile, Coinbase's VP of international policy, Tom Duff Gordon, said US regulators are trying to force the domestic crypto sector to adhere to its legacy regulatory regime, rather than update the rules to meet the innovations of this nascent industry.

"The US is trying to force this new technology into an existing set of rules and enforcing rather than engaging," he said.

"Coinbase prefers regulation by engagement, rather than regulation by enforcement, and unfortunately at the current time, we see too much regulation by enforcement on the US side. We find that the US is trapped in a somewhat circular debate over cryptocurrency regulation," Gordon added.

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In March, Ripple CEO Brad Garlinghouse said that more than 80% of the companies hiring this year will be from outside the US.

He highlighted more favourable regulatory conditions in global crypto hotspots, such as Singapore, Hong Kong and Dubai. Other firms, like Revolut and Gamestop (GME), who have web3 wings, are shutting down their blockchain-based applications in the US to avoid potential enforcement actions from regulators.

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It is due to this migration of web3 firms, that Gordon believes the UK has the opportunity to achieve its goal of becoming a global crypto hub. Major web3 firms, such as Coinbase and A16z, have already established operations in the UK this year.

Web3 migration from the US is an opportunity for the UK
Gordon said that with the progressive developments in other jurisdictions, "the US is now a global outlier".

He highlighted developments in the EU, with the approval of the Markets in Crypto Assets law (MiCA) and the UK's recent proposal for future regulation of crypto asset activity within the country.

Meanwhile the UK has moved forward to explain how they are going to regulate this sector, Gordon observed.

"The UK government has been wanting to make the UK a global hub for web3, and HM Treasury have published their response to the crypto assets consultation they released in February," he added.

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At the end of October, the UK Treasury published its final proposal for future regulation of crypto asset activity. The proposals outline the UK government's intention to bring several crypto asset activities into the regulatory perimeter for financial services for the first time.

Gordon described the UK's proposal as "very cogent and compelling". He described how its first phase tackles oversight of stablecoins, and then a second step that focuses on the centralised crypto actors, such as exchanges, like Coinbase.

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He added that the UK now has an opportunity to use blockchain and crypto "to transform and modernise its financial system".

"It will allow us to do peer-to-peer payments, take away a lot of the intermediaries, transacting will be much cheaper and much faster. It'll democratise access to different types of investments as different funds, stocks, and shares are tokenised.

"This will all be beneficial for the UK, as well as bringing in jobs and investment from the companies that are inventing and innovating in this area," he added.

Gordon stressed that the majority of G20 countries, including some of those global financial centres like Hong Kong and Singapore are moving forwards with progressive frameworks and regulatory clarity.

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US regulatory crackdown on crypto
Gordon attributed the stricter crypto regulation in the US to the complexity of the regulatory framework in the country.

"In the US they have a more complicated regulatory and supervisory setup than we do in the UK and many other international countries. They have the CFTC which looks at the commodities and futures markets, and they have the SEC which looks at securities, at the moment there is a jurisdictional question around whether crypto tokens are commodities or securities."

He said that the United States is still employing an outdated method, known as the Howey Test, developed back in 1946, to determine whether an asset qualifies as a security or not.

"The US is trying to apply that very old test in the context of the two separate entities that are jostling for jurisdiction, the CFTC and the SEC, and that is creating some of the complications," he added.

UK as a global crypto hub
Last year in the UK, the then-chancellor and now-prime minister Rishi Sunak, made clear his goals for web3, aiming to make the UK a global crypto hub.

The government noted the importance of crypto and digital assets for the future of finance and the jobs the sector creates, and moved to do what some jurisdictions have conspicuously not done: consult with industry leaders to ensure effective regulations are developed.

Read more: Could Rishi Sunak make the UK a global crypto hub?

A study conducted in March of this year found that Europe has a higher number of crypto startups than any other world region, and referred to London as its "crypto hub".

The study by web3 investment firm Rockway listed 3,977 cryptocurrency and web3 startups as having their headquarters in Europe. Europe had the largest number of startups working on blockchain and crypto solutions, followed by the US, with 3,357 startups.

London came out on top as the crypto hub of Europe in terms of venture capital investment in 2022, with $1.6bn (£1.3bn) invested in 2022.

"London remains the crypto hub of Europe, followed by the Swiss crypto valley hotspots of Zug and Zurich. Berlin and Paris compete for third place", the study said.