BitOoda Global & Regulatory Analysis 9/30/2019: East vs. West: Widening Regulatory Differences Highlight Influence of Politics on Industry Development

It was a relatively quiet week on the regulatory and international fronts. Sure, there was another memorable quote from SEC Commissioner Hester Peirce, who said digital assets could become “the money of the internet” and agreed that the U.S. is becoming less competitive because of its slow regulatory development, while another ETF proposal continued to get nowhere in the approval process. And we saw two IMF officials give a small boost to the evolving discussion about Central Bank Digital Currencies (CBDCs) by sharing their view that a ‘synthetic’ CBDC — a public-private partnership — would be better than a strictly government-controlled asset.

The “same-old” nature of these statements made us think about broader trends in the past month or so, which brought us back to the power struggle that has developed around Libra, which reminded us how deeply politics has started to influence the digital asset world and the degree to which it is slowing market development in the U.S. Which made us revisit the state of things in other parts of the world, including Japan’s continued progress in developing a clearly defined and increasingly effective regulatory regime.

While the U.S. Congress, European central banks, and other Western regulators continue to flail about Libra’s perceived threat to their authority, we contrast their political posturing with other news from Japan that reminds us how far we have to go here in the U.S. on the regulatory front. What can we infer from the different approaches and results between the West and East, and what are the implications for U.S. industry moving forward?

First, let’s review some developments over the past few weeks:

• The nominee to head the European Central Bank (ECB) called for a measured approach to digital assets, while the ECB published a paper on the role of stablecoins in the digital market.
• Switzerland’s FINMA issued updated rules for blockchain payments and stablecoins (including Libra), and its director commented on Libra’s risks and opportunities.
• French and German finance ministers commented that Libra could “pose risks to consumers, financial stability and even the monetary sovereignty of European states,” and called for the ECB to continue its ongoing work on the development of a central bank-managed virtual currency.
• In the U.S., the Treasury Undersecretary reaffirmed that Libra and other cryptocurrencies have to comply with U.S. financial regulations, while SEC Chair Clayton confirmed his view that there still is “work left to be done” before he will approve a bitcoin ETF.
• The new head of the FATF (Xiangmin Liu of China’s central bank) commented that the global AML watchdog will closely monitor Libra’s development.
• Meanwhile in Japan, the Financial Services Agency (FSA) approved a cryptocurrency business license for the country’s most popular messaging app, and released statistics showing that crypto-related inquiries have significantly dropped since the country issued dedicated digital asset regulations and established an official channel for regulatory consultations.

The decrease in regulatory uncertainty Japan’s FSA has achieved is exactly what we and others have been calling for in the U.S. Without a single government focal point, a dedicated set of guidelines covering the crypto space, or clear processes for licensing, KYC/AML, and other complex issues, U.S. digital asset innovation and market development will continue to struggle.
Japan certainly has had its share of issues in the crypto arena, but its current regime actively enforces the country’s regulations while also enabling continued innovation, benefits from an industry voice through the JVCEA, and has now shown quantitatively that it is improving regulatory clarity among market participants. Achieving that type of understanding in the U.S. — whether through congressional action or clearer SEC/CFTC guidance — is the most urgently needed change to prevent the U.S. from falling further behind globally.