EU approves MiCA, US crypto firms consider relocating amid regulatory uncertainty

This week, the crypto industry was largely dominated by regulatory developments. Industry leaders continued to express concerns about the regulatory climate in the United States, with some firms contemplating migrating in response to the Securities and Exchange Commission’s (SEC)crackdown. In contrast, the European Union had more clarity, as the parliament approved proposals in the Markets in Crypto Assets (MiCA) bill. 

The SEC sustains regulatory efforts

The SEC is unyielding in its efforts. On April 17, the agency declared its readiness to regulate decentralized finance (DeFi), which critics say would slow down or impede the sphere’s growth. 

SEC chairperson Gary Gensler confirmed that DeFi would not be exempt from their supervision. They plan to modify the definition of “exchange” to include decentralized platforms such as DEXs. Further regulation would involve phrasing that concentrates on virtual assets.

However, some regulators expressed reservations, with commissioner Hester Peirce warning that the proposal’s ambiguity could compromise free speech rights and promote incumbents while limiting innovation in the financial market.

Moreover, Representative Warren Davidson intends to propose legislation to oust chairman Gary Gensler due to his perceived overreach in cryptocurrency regulation. This is mainly in light of the SEC’s proposed redefinition of “exchange.” 

While Gensler argues that the update would enhance investor protection, crypto advocates have criticized it as an overreach. Davidson sees Gensler’s removal as a way to address authority misuse.

In another effort, reports from April 16 revealed that the SEC served crypto exchange Bittrex a Wells Notice, alleging that it breached regulations by not registering as a broker-dealer, clearinghouse, or exchange. 

On April 17, the SEC charged Bittrex “for failing to register as a national securities exchange.” The exchange criticized the SEC’s action, noting that it always complied with the law and is keen to clear its name in court. The company also criticized the move as part of a more comprehensive campaign to stamp out cryptocurrency from the United States.

SEC chairperson appears before Congress

During the sustained crackdown on the crypto industry, SEC chairperson Gary Gensler appeared at an oversight hearing before Congress. Gensler was grilled about FTX’s combined functions, as it served as an exchange, broker-dealer, and hedge fund.

The chairperson expressed concerns about the combination of services offered by FTX. When asked about actions taken against the now-defunct exchange in this regard, Gensler deflected the question. However, he did mention that the SEC has taken some steps against FTX founder Sam Bankman-Fried.

Furthermore, during the oversight hearing, the committee chairman, Patrick McHenry, inquired whether ethereum (ETH) is a security or commodity. Still, Gensler was non-committal in his response, stating that particular crypto tokens should be evaluated based on the Howey test.

Gensler appeared to have dodged several questions during the oversight hearing, exemplifying the extensive case of regulatory unclarity. Criticisms poured in, with numerous crypto proponents calling for Gensler’s sack.

Industry leaders voice apprehensions 

On April 21, Paradigm, a web3 venture capital firm, joined the chorus of voices in the crypto community criticizing the SEC’s policies. In a policy paper, the firm argued that the SEC’s approach needs to be revised and adapted for the decentralized nature of the market.

The company, which invests heavily in crypto and web3 startups, criticized SEC’s policy approach. They said efforts to fit crypto assets into a disclosure framework established in the 1930s need to be revised.

They believe the SEC’s current disclosure framework must be revised for new technologies and asset classes. Moreover, the agency needs to adapt it to address the needs of crypto asset users and investors who require essential information.

A looming exodus

With regulatory ambiguity in the United States, domestic companies are turning their attention overseas for investment prospects. In particular, Coinbase, a cryptocurrency exchange, is reportedly considering the UK as a “hub of web3 innovation.” Coinbase CEO Brian Armstrong said the firm would continue investing.

Coinbase lauded the progress made by the UK in crypto and expressed its optimism about the future of DeFi in the region. It also urged UK banks to partner with fintech firms to spur innovation in digital assets. 

Per reports from April 18, Armstrong revealed that the crypto exchange might need to relocate its business outside the United States because of the lack of regulatory clarity in the country. He added that if the United States doesn’t establish clear guidelines for the crypto industry within a few years, Coinbase may need to explore investment opportunities in other countries.

Coinbase is not the only exchange recently highlighting issues with the United States’ regulatory climate. Bittrex announced last month that it would be winding down its operations due to unfavorable regulations.

Coinbase also disclosed on April 20 that it had procured an operating license in Bermuda and is planning to establish an offshore derivatives exchange there. At the same time, the company is also seeking approvals in Abu Dhabi. 

During a Twitter Spaces discussion on April 21, Coinbase CEO Brian Armstrong and other participants expressed concerns about the negative impact of cryptocurrency policies on the United States’ financial and technological innovation, which is crucial for national security.

Coinbase’s chief policy officer, Faryar Shirzad, emphasized that crypto technology represents a crucial advancement in the evolution of the internet. He noted that there is global competition to gain an advantage in crypto and digital assets. The nation that leads in this field will ultimately dominate the future of the internet, but the United States is lagging.

Susan Friedman, the head of policy at Ripple, concurred with the views expressed in the Twitter Spaces session and stated that the ambiguous crypto regulations in the country are causing companies to move their business activities overseas, making it challenging for the government to track illegal activities. 

Meanwhile, on the same day, Gemini announced the launch of a new platform called Gemini Foundation that will focus on crypto derivatives. Still, the firm noted that the platform would serve customers outside the United States. Gemini has also had its fair share of regulatory run-ins with the SEC.

Worldwide regulatory push

The Bank of England (BoE) announced on April 17 that it plans to create new rules for stablecoins to safeguard financial stability.

Jon Cunliffe, the deputy governor of the BoE, said the upcoming stablecoin regulations would be designed like commercial bank money. However, unlike bank deposits, stablecoins will not have the same protection against failure. 

Cunliffe also explored the potential for novel ledger technology to pave the way for digital banknotes and tokenized bank deposits, necessitating a strategy running parallel to the regulatory framework for stablecoins.

Moreover, the government is set to implement laws aimed at regulating the crypto industry in the next year, as stated by Andrew Griffith, the economic secretary to the UK Treasury. The regulations have been in the works since February, and consultations are ongoing, set to end by April 30.

Meanwhile, the United Arab Emirate’s (UAE) financial regulatory body revealed that it would begin accepting license applications from businesses that want to offer virtual asset services. All virtual asset service providers operating within the UAE, except those already permitted to work within the country’s financially free zones, must apply for and obtain a license from the regulator.

EU Parliament approves MiCA

Further reports from April 19 suggested that the EU Parliament is ready to vote on the Markets in Crypto Assets (MiCA) proposal, which seeks to regulate the crypto industry and restore confidence in the market. The proposal would establish a legal framework to oversee the industry and end its “wild west” phase. 

Shortly after the report, it was disclosed that the parliament passed MiCA, making the European Union the first significant authority to implement full crypto guidelines. The regulations will cover all cryptocurrencies and businesses providing related services not overseen by current financial laws.

A few hours after the MiCA law passed, Ukraine announced its plans to adopt the legislation to regulate the local crypto industry. This was revealed by Yaroslav Zheleznyak, the Tax Committee’s deputy chairman, in a Telegram message.

Global enforcement actions

This week also witnessed a slew of enforcement actions. For instance, the founder and CEO of Thodex, Faruk Fatih Ozer, was arrested by Turkish authorities this week. Ozer was accused of using Thodex, a collapsed crypto exchange, to defraud thousands of investors and laundering millions of dollars. He was detained at Istanbul Airport on April 20 after being deported from Albania, where he was captured last year.

In a separate development, Alex Pertsev, founder of crypto mixer Tornado Cash, is expected to be freed from detention under supervision after being apprehended on money laundering charges for nearly nine months. This comes after previous requests for his release were denied due to concerns about him fleeing the country.

Dutch officials had arrested Pertsev in August of last year, not long after the United States Treasury Department added several Tornado Cash addresses to its list of sanctioned entities. The conditional release will require Pertsev to wear an ankle monitor.