The recent crackdown on US-based crypto companies by federal regulators is spelling trouble for their European counterparts.
With banks getting more selective about their relationships with crypto companies in the aftermath of the collapse of Silvergate and Signature Bank, European regulators may find it harder to get information and support from the financial sector. This could hamper their ability to effectively regulate the industry.
This week, the world’s largest crypto exchange, Binance, felt the full force of newfound regulatory zeal on the other side of the Atlantic. In a landmark move, the Commodities and Futures Trading Commission brought federal charges against Changpeng Zhao’s nomadic company, setting out a series of extraordinary allegations against the business and its senior leadership in the process.
Chiefly, the complaints center on an allegation that the “opaque web of corporate entities” that ceded control of Binance to Zhao in 2017 was nothing more than a vehicle to commit securities fraud.
It would appear that the crackdown on the digital asset sector is continuing. Just recently, the US Securities and Exchange Commission contacted Coinbase, informing the digital asset exchange that it is preparing to take legal action against it over some of its offerings.
On the business side, things aren’t looking a whole lot better. Since the collapse of Silvergate and Signature Bank – two lenders with strong ties to the digital asset industry – Bloomberg reported this week that already-wary institutions are getting cold feet about getting involved in the space.
Against this uncertain backdrop, Coindesk’s Kevin Reynolds wrote in an editorial this week that “some firms are looking at moving overseas”. With the EU’s wide-ranging Markets in Crypto Assets (MICA) regulation set to come into force this year, Europe might look like a natural destination for any legitimacy-hungry crypto refugee hoping to pack up and start afresh.
Politicians, in Ireland and across Europe, have been walking a tightrope with the crypto and, more broadly, blockchain industries, hoping to reap the benefits of this burgeoning technology while avoiding the potential pitfalls.
However, recent scandals in the crypto sector suggest that the excesses of businesses operating in this space may be worse than regulators anticipated, with MICA setting out tight rules in an attempt to protect businesses and customers. While this will go a long way towards preventing some of the worst abuses, it’s clear that there is still a lot of work to be done in order to clean up the sector.