The US culture of entrepreneurship and innovation is almost unparalleled. Over the past decades, it’s generated a technological revolution comprising dozens of multi-billion dollar companies including Microsoft, Google, Amazon, Facebook, SAP, and many more.
However, the growth in popularity of cryptocurrency, combined with the hesitance of regulators to issue any concrete legislation has led to an increasingly uncertain environment. Consequently, at least as far as crypto is concerned, the “Land of the Free” may now no longer be a wholly accurate description.
Recently, representatives from crypto firms have spoken out about how the regulatory climate is becoming a deterrent to innovation. Circle, the firm that owns cryptocurrency exchange Poloniex, published a blog post explaining its frustrations with the SEC approach of “applying laws written in the 20th century to technologies created in the 21st.”
This came after Poloniex delisted nine crypto assets from its trading platform. According to Circle, the consequence of the SEC actions are, “chilling innovation in the US and nudging crypto projects toward jurisdictions with greater regulatory clarity.”
Which Other Platforms Are Withdrawing from the US?
Bancor is one example of a trading platform which has now withdrawn from offering services to US users entirely. In contrast to a standard cryptocurrency exchange which works on a more traditional order matching system, Bancor is a liquidity network based on a relay token model. Nodes on the network stake the native Bancor (BNT) token along with Ethereum or EOS-based tokens. In this way, there is no dependency on an order match, as any token can be traded based on these reserves.
Ultimately, Bancor’s vision is to allow users to swap any token for any token. In 2019, it’s already added integration for EOS tokens, and more blockchain platforms are expected to follow. Therefore, to fulfill its goals, Bancor needs complete freedom to operate throughout the crypto ecosystem. This has now led the company to bar US users from trading.
It’s plausible that Bancor’s move away from the US may now help to stimulate more staking and more new tokens to join the platform, without the US regulatory uncertainty hanging over them.
Bancor is certainly not alone. Binance also recently confirmed it would be launching its own US-compliant exchange. While this is good news in the long-term, US customers will also be barred from trading while the company goes through the necessary regulatory hurdles.
This move could severely limit the trading options for users in the US. Binance has risen to become one of the world’s most popular crypto exchanges, in part due to its broad range of altcoin pairs. The decision to close the doors on US users now means that many altcoins, including VET and NULS, will no longer be available to US traders through any exchange. Some, such as TrustToken’s TUSD and BTT, are in the precarious position of being accessible to US users through only one exchange.
How Not to Foster Innovation
Binance and Bancor are probably now big enough in other markets to take a temporary hit on excluding US users. However, these smaller projects that have been locked out of a large and enthusiastic market of crypto traders are far more vulnerable.
This is the crux of why the US regulatory approach is stifling innovation. If up-and-coming blockchain innovators suddenly find the value of their token plummeting due to a US exclusion, their projects may not recover. Worse still, it may also discourage other innovators from bringing their projects to market for fear that they’ll end up in a similar situation.
This is the view shared by Kiran Raj, Chief Strategy Office at Seattle-based Bittrex. Raj previously worked at the US Department of Justice at the same time the Silk Road marketplace was being taken down by the FBI, so he understands the inner workings of the US lawmakers better than most. He’s also spoken out against the current US regulatory approach to crypto, stating that lack of clarity has hurt startups. It’s also forced Bittrex to seek out other, safer locations in Europe and elsewhere.
Of course, regulating cryptocurrency is a delicate area. To ensure that governments are fostering technological innovations, regulators have to walk a fine line between too much regulation and not enough. The decentralized nature of blockchain doesn’t recognize geopolitical borders, nor does it easily fit into existing (and decades old) legislation.
But at the same time, the US approach is becoming too ostrich-like to sustain. If the regulators don’t step up to address the challenges in front of them, the US risks losing its reputation for fostering innovation and entrepreneurship. Given its reputation and outstanding successes, this would be a crying shame for the Land of the Free.