All quiet on the USA Web3 front?

You may have come across reports indicating that Gary Gensler, Chair of the US Securities and Exchange Commission (SEC), is facing a restructuring proposal for his regulatory body.

This proposal stems from the controversy he has stirred in the United States by actively pursuing companies involved in virtual digital assets. Two Republican presidential candidates who proposed this bid have pointed out that most of SEC’s regulation is by enforcement and often impacts the US capital market negatively.

The US is increasingly becoming aware of how regressive its crypto approaches are and how far it is falling behind as compared to the UK, EU, and APAC.

This is a cause for concern since the power play among countries will largely be focused on crypto assets and as nations are unravelling regulations for innovation, user protection, and a business-friendly ecosystem.

The US is not ready to be a simple spectator as its native industry looks at an uncertain future.

Tracing the current stance of countries

Once touted as monopoly money which won’t solve any real-world purpose, Bitcoin has experienced a remarkable surge in popularity among users and has even garnered support from certain lawmakers who now recognise its transformative potential.

In the last year, regulators across the world have worked hard to bring some method to this ecosystem after a few turbulent episodes left consumers vulnerable, markets crashing, and thriving projects collapsing.

The sudden shift in attitude towards regulating crypto for a better adoption environment instead of imposing a shadow ban given how it affected the market was the first positive sign that crypto’s potential is being recognised.

Government agencies across the globe have figured out how crypto can be used to serve national interests. It can greatly improve the efficiency of financial systems and improve capabilities in financial inclusion, activating an alternative value exchange system for cross-border transactions, trade, remittances, etc.

Blockchain technology can help in diversifying a country’s reserve portfolio and reduce dependency on monetary systems, rising interest rates, inflation, etc. Countries individually can reduce the dollar hegemony over time and strengthen their own currency. Global financial institutions have actively supported research on digital assets.

With the IMF proposing a platform for wholesale transactions between countries to support a uniform exchange of CBDCs, countries will focus on faster rollout of their respective CBDCs and multiply their utility, for which they need to foster domestic blockchain capabilities and tap into global talent.

Not all regulatory bodies rushed to save the crypto ecosystem. Some took this opportunity to point out the various loopholes that exist and how their drawbacks seemingly outweigh the utilities.

What APAC, EU and UK are doing

But the ones (read: countries) who have rallied behind it are now at an advantageous position. We’ve seen countries in the Asia-Pacific take a firm stance on crypto and cautioned its citizens against virtual digital assets.

However, in the last couple of years, they went on to formulate new policies, attract and retain talent, provide more access to digital assets to citizens, create their own blockchain based ecosystem native to their country, and also entice businesses abroad to set up shop in the region.

Capitalising on the opportunities that Web3 is set to bring to internet users across the globe, countries such as South Korea, Japan, Singapore, Hong Kong, and Australia are moving swiftly to establish a virtual presence for their country, not via private entities or MNCs but their official government-backed initiatives.

They have identified how millions of jobs can be created through a decentralised value exchange system globally and checking all the boxes to make it happen.

The European Union and the United Kingdom have taken a well-balanced approach towards crypto where they want to marry innovation and consumer protection, and want to be positioned as a global crypto hub. They have moved fast on domestic regulations and intend to bring them to the consumers, latest by 2024.

Most of these countries have developed a symbiotic relationship with TradFi institutions venturing into DeFi or crypto exchanges/organisations looking to establish a global presence.

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What’s brewing in the US

The United States thus finds itself in a unique position where instead of gaining first mover advantage. It’s driving Web3 businesses away from its lands due to increased scrutiny of crypto businesses, no regulatory clarity, and categorisation of crypto tokens as ‘securities’.

Since it has the largest crypto user base in the world, and Bitcoin still relies on S&P 500 movements, its approach towards crypto affects market prices and leads to volatility. However, with adoption increasing fast around the world, it soon won’t have this hold over the crypto ecosystem the way it does over the global monetary system with the dollarisation of the economy.

Thus, it isn’t surprising that those who see this coming want a better regulatory approach than what the SEC has been up to with crypto in recent years. Non-cooperation with private businesses and lawsuits are spooking US crypto market operators. They are being lured by better ecosystems abroad where there is potential for active support from governments.

It is safe to say that the upcoming 2024 presidential elections will see crypto being a point of focus for candidates, the same as it was in the EU and the UK. Since the respective leaders were elected, regulations moved fast and infused confidence in the consumers of the region about the future of digital asset adoption.

At the moment, the situation seems blurry and turbulent in the United States and before the ship sinks any further, there will be an active campaign to revive the Web3 industry in the country.

We will see politicians take the reins on crypto’s way forward, as is obvious from the current sentiment in DC. Leaders will seek better collaboration and dialogues with the SEC, and oppose ‘reckless’ decisions that can affect the US’s interest both from the business and consumer perspectives.

(Rajagopal Menon is the Vice President of WazirX. He was previously with Jio, Games2Win,etc.)