If a business’s application is denied by the SEC, it cannot provide securities-related services in the United States, at least not in the form described in its application. This possibility could pose an “existential threat” due to confusion over the classification of crypto assets, Siemer said. “Going in and signing up means not being there anymore,” he said. “There is no frame; there is no way.
The question of what is a cryptocurrency can be settled in court. For example, the ongoing case between the SEC and cross-border payments company Ripple over the cryptocurrency XRP is expected to go some way towards clarifying whether cryptocurrencies should be considered securities (and be regulated by the SEC). Two years later, the case is nearing judgment, but because it is in a district court, no binding precedent will be established. However, a victory for the SEC would strengthen its case for becoming the de facto cryptocurrency regulator.
A better solution, industry insiders say, is for the U.S. Congress to enact comprehensive cryptocurrency legislation. The European Union is expected to introduce broad-based crypto legislation in 2024 under the Markets in Crypto Act (MiCA), and countries like Japan and the UAE have also moved quickly, but the U.S. is lagging behind. A number of crypto-related bills were introduced in the 177th Congress, but died at the end of the most recent session in December, requiring formal reintroduction and further debate.
Mulvaney, who served in the House of Representatives for six years, said that anything like comprehensive cryptocurrency legislation is unlikely to be passed this year before the 2024 presidential election. But the silver lining, he said, is that cryptocurrency is “bipartisan” — it appeals to liberal beliefs on both sides of the political divide — meaning legislative issues won’t be resolved along “tribal lines.”
“It’s hard to operate without regulation because you don’t know what you are,” Mulvaney said. “You don’t want to be over-regulated … but you need enough guidance and clarity. That’s the sweet spot.”
In some parts of the crypto community, the regulator’s refusal to set clear boundaries has been interpreted as a deliberate attempt to squeeze the industry out of the United States.
Whatever the intent, Mulvaney and Siemer said, a consequence of the continued blurring of crypto asset classifications, competent regulators, and the process of registering services with the government is likely to be an exodus of crypto business from the country.
In late March, Circle Internet Financial, the issuer of the USDC stablecoin, Announce Plans to open European headquarters in Paris. According to Bloomberg, Coinbase is also planning an offshore version of its trading platform. Grewal declined to confirm, but said the company “is closely monitoring growth in markets outside the U.S.”
A similar pattern is playing out among smaller crypto firms. Wave Digital Assets is preparing its own contingency plans, Siemer said. While the company has not yet considered leaving the US, it has stopped hiring in the country due to concerns about the regulatory environment.
SEC Commissioner Pierce said the agency’s goal is to help enable safe technological experimentation, not push the crypto industry overseas. But she is sympathetic to that explanation. “If you’re trying to send a message in the U.S. that you want encrypted currency, but you want it to be compliant, the way to send that message is to help companies [to become compliant]. But we don’t see that happening,” she said.
“You don’t fix the situation by saying ‘come in and check in’ – because no one knows what that means – but you put everyone in a room and talk like adults.”