The crypto sector, that currently stands at a valuation of $1.06 trillion (roughly Rs. 87,20,946 crore), is undergoing a period of slump. This comes in the backdrop of the US SEC cracking down on crypto players over charges of legal violations. The SEC has initiated lawsuits against crypto exchanges Binance and Coinbase. Crypto insiders from India have weighed-in on the situation, agreeing that the overall industry is indeed frustrated that the lack of regulations to govern the sector is causing frequent upheavals, leaving investors as well as industry players negatively impacted.
The SEC sued Coinbase and Binance earlier this week in a rather dramatic escalation of crypto crackdown by US regulators. The financial and markets watchdog of the US, the SEC has levied charges against these exchanges for artificially inflating trading volumes, diverting customer funds, misleading investors about market surveillance controls, and flouting more “rules”.
In conversation with Gadgets 360, Unocoin Co-Founder, CEO Sathvik Vishwanath highlighted that the potential relocation of crypto mammoths like Coinbase away from the US can have serious implications on US’ grasp on the Web3 sector.
“The overall sentiment conveyed by these events is that the regulatory environment for cryptocurrencies in the US remains uncertain and fragmented, leading to frustration among industry players. The US may lose out on innovation, investment and job opportunities in this burgeoning sector,” Vishwanath said.
With crypto miners flocking to the US to set up shops these recent years, Web3-related activities have spiked up notably in the country. Research firm Statista reportedly predicts that US will fetch $17.96 billion this year, making it the highest crypto-driven revenue in 2023 with a staggering 108 percent increase.
In the backdrop of SEC’s back-to-back strikes against crypto players, industry players have begun wandering off seeking for greener pastures outside of the States.
This week itself, Web3-focussed venture capital firm Andreessen Horowitz (a16z) took its first step out of the US, to enter UK’s ‘predictable’ crypto climate.
Meanwhile, world’s most ‘crypto-ready’ region Hong Kong has extended an invitation to the distressed Coinbase exchange, to step into its thriving Web3 market.
Johnny Ng, a Legislative Council member from Hong Kong, expressed support to digital asset players struggling amid legal uncertainties.
I hereby offer an invitation to welcome all global virtual asset trading operators including @coinbase to come to HK for application of official trading platforms and further development plans. Please feel free to approach me and I am happy to provide any assistance. pic.twitter.com/bcIi1IjMlc
— Johnny Ng 吴杰庄 (@Johnny_nkc) June 10, 2023
“Jurisdictions like Hong Kong typically offer a number of incentives to attract crypto companies, such as favorable regulatory frameworks, tax benefits, access to capital markets, and a skilled workforce. By attracting established players such as Coinbase, they are looking to improve their status as crypto-friendly destinations and potentially reap the economic benefits of the growth of the crypto industry,” Vishwanath added.
“It is not uncommon for jurisdictions to actively seek out crypto firms to enter their markets, especially if there is a perception that regulatory issues or uncertainties in other countries could benefit their own ecosystem.”
The SEC and the crypto companies in the US have been locking horns for a while now. While the SEC aims to keep US’ investor community safe against financial risks, the crypto exchanges are demanding ease of doing business under concrete guidelines as opposed to the current regulatory chaos.
Crypto companies in the US have time and again blamed the SEC for not clarifying crypto rules. Just in April, Coinbase sued the SEC for not clarifying rules surrounding the growth of crypto businesses in the US. The crypto exchange, at the time, asked a US court to compel the SEC to provide detailed information to allow crypto companies to plan and develop their operations.
Mahin Gupta, Founder of digital wallet provider Liminal, has sounded an alert to crypto players telling them to get ready for more scrutiny in the coming days.
“This marks the beginning of a series of actions aimed at establishing tighter control over the industry. While these measures may ultimately contribute to legitimising the Web3 industry in the long run, it is important to acknowledge that such strong actions could potentially stifle innovation. Therefore, web3 firms need to proactively prepare themselves for heightened regulatory scrutiny,” Gupta told Gadgets 360.
At present, crypto activities are taxed in the US but the country is still doing its research to curate crypto laws tailored to its investor community.
The European Union (EU), meanwhile, has finally prepared and passed the MiCA legislation, that will govern the crypto sector uniformly across the EU region.
More nations are working on drafting rules to oversee the crypto sector.
India, which is presiding over the G20 group of nations, is spearheading the curation of such crypto laws, that would work on an international level. The World Bank and the International Monetary Fund (IMF) are also participating in the process.
“For crypto players, transparency regarding their operations is crucial, as is constructive engagement with regulators. By fostering collaboration between the digital asset industry and regulators, a balance can be struck between promoting innovation and ensuring investor protection. This collaborative approach will ultimately foster the long-term growth and success of the Web3 industry,” Gupta noted.
