Erik Weijers, a month ago

US regulator Gary Gensler under fire, Coinbase courts the UK

The irony wasn't lost on viewers. While Gary Gensler, head of the American financial watchdog SEC, was being grilled by US Congress about his alleged mistreatment of the crypto industry, the CEO of Coinbase met with UK Economic Secretary. Coinbase was informed a few weeks ago that the SEC will bring enforcement action. 

During the congressional hearing, crypto Twitter en masse shared a clip of Gensler being unwilling to classify Ether as a security or commodity in front of a very critical congress member. This refusal to give clarity goes at the heart of the frustration of American crypto companies with the Securities and Exchange Commission. According to them, there are no clear laws in place, and at the same time the SEC files lawsuits left and right.

The SEC's Gary Gensler has always denied that there is not enough clarity. Which makes his refusal to classify Ether as a security or commodity even more puzzling. If ETH is a security, then it would be an 'investment contract', which would oblige the Ethereum foundation to share financial data like any listed company needs. The problem is that securities laws stem from the 1930's and might not be applicable to an entire new investment class called crypto.

Gensler out?

Another congressman asked Gensler: "Did you coordinate with Senator Warren (who wants to create an 'army against crypto') on acceptable answers for this hearing?" Gensler denied this and seemed uncomfortable. The same representative proposes legislation for the SEC to be restructured and Gensler to be removed from office. 

While all this doesn't at all imply that Gensler will indeed be pushed out, it shows that a part of the American Congress opposes the way its country deals with crypto companies. 

Regulatory arbitrage: companies leaving the States? 

As mentioned, CEO of Coinbase Brian Armstrong visited the UK and met with government officials. While Coinbase is the only American crypto company listed on the New York Stock Exchange, it isn't inconceivable that it will move its headquarters to London. Armstrong: "I think in a number of years if we don't see that regulatory clarity emerge in the U.S. we may have to consider investing more elsewhere in the world."  

For the UK, this could offer a chance to gain back some lost advantage as a finance hub. This is called regulatory arbitrage: countries benefit from businesses that seek out more favorable regulations and jurisdictions to operate in. Analysts such as Raoul Pal argue that the UK is well-positioned to become a leader in the crypto industry: it has a history of capturing markets through regulatory arbitrage. Countries such as Switzerland, Germany, France, Singapore, and Hong Kong are also becoming centers for the industry.

It goes to show that crypto as a technology has no borders and can't be stopped by a single nations' hostile regulatory agency, even if that nation is the US...

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Many crypto enthusiasts and the broader crypto industry had high hopes for the UK to become the biggest crypto hub next to Europe. An open and efficient regulatory framework was promised, and it was believed that crypto would soon thrive in the country. A royal NFT mint was one of the many indicators that these plans are more than just make-believe. The expectations for crypto in the UK have changed all of a sudden.

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