The US is losing its edge in crypto adoption
Several countries are taking advantage of the US’s crackdown on crypto in a bid to try and capture a share of the rapidly growing trillion dollar industry. In this article, we take a look at a few countries with the most crypto-friendly jurisdictions.
In recent years, the United States has been a hub for many of the world's largest and most innovative crypto companies. However, due to the government's lack of regulatory clarity and even antagonism, plus the rapid increase in global competition, the US is losing its lead in the industry. The country's crypto framework and policies regulation process are seen as outdated compared to "behind" other countries, which could impact its position as a leader in the industry.
Many experts believe that the Securities and Exchange Commission's (SEC) strict and non-cooperative approach to the industry is hindering the crypto’s domestic growth and development. They argue that the SEC's regulation through enforcement is not a "healthy way" to regulate an industry.
One of the most prominent examples of the SEC's approach is its ongoing case with Ripple. The SEC alleges that Ripple conducted an unregistered securities offering, which has resulted in a lawsuit. The case is expected to end this year but Ripple’s executives are already threatening to leave the US. Additionally, the SEC has charged Paxos to stop issuing its stablecoin, BUSD. Both Ripple and Paxos are just two of many examples of companies that have faced legal challenges from the SEC in recent years.
The process has resulted in the US being a less attractive location for crypto firms. As a result, the crypto industry has "already started moving outside" of the US and there are increasing signals that lawyers and advisors are telling companies to not engage with the US and its citizens. Let’s take a look at countries that are forward-thinking and have been embracing the burgeoning crypto industry.
If the US does not adjust its approach, it risks falling behind other countries in the rapidly growing and competitive crypto industry. The U.S is not an attractive crypto hub anymore and other countries are actively adopting and integrating cryptocurrencies into their financial systems.
For example, China has been developing its own digital currency, the digital yuan, and has already started trials in several cities. In Europe, countries such as Switzerland, Estonia, and Malta have been actively promoting the use of cryptocurrencies, with the latter two even providing legal frameworks for crypto-related businesses. Many countries have been taking a proactive approach to regulating and integrating cryptocurrencies, which could potentially give them an advantage over the US if it does not adjust its approach.
The Chinese government has been known for its strict regulations on cryptocurrencies, with a ban on initial coin offerings (ICOs) and a crackdown on crypto mining in the mainland. However, the government is more lenient towards Hong Kong's ambitions to become a cryptocurrency hub.
Hong Kong has been keen to establish itself as a hub for blockchain and cryptocurrency technologies, and its government has shown its support for the industry's development. In October 2021, the government floated the idea of introducing its bill to regulate crypto and allow retail investors to invest directly in virtual assets.
This move has received subtle support from Beijing, which may be open to using Hong Kong as a testbed for crypto. Suppose the city does not violate the bottom line and threaten financial stability in China. In that case, it is free to pursue its pursuits.
In February 2023, Hong Kong's Securities and Futures Commission outlined a new crypto license regime that proposed licensing all centralized exchanges operating in the region. The regulator also proposed allowing retail traders access to licensed cryptocurrency trading platforms, saying denying access to crypto markets may push Hong Kongers to trade on unregulated overseas platforms.
The new regulatory framework for virtual asset services in Hong Kong has several benefits for virtual asset service providers (VASPs) and investors. Firstly, it provides clarity and certainty about the legal and regulatory environment for virtual asset services in Hong Kong. Secondly, it promotes transparency and accountability in the virtual asset market, with licensed VASPs required to maintain proper records, conduct regular audits, and report suspicious activities to relevant authorities.
Hong Kong's increasing interest in blockchain and cryptocurrency technologies, coupled with its favorable regulatory environment, could help it become a leader again in the global financial industry. By embracing new technologies, protecting investors, and promoting transparency, Hong Kong can continue to attract blockchain and crypto businesses to its shores.
Crypto entrepreneurs have long benefited from Dubai's zero-corporate tax fees. UAE residents generally pay 0% income tax, regardless of whether it was earned in the country or elsewhere. As of early 2022, over 400 crypto businesses were already operating in Dubai, with the city wanting to double this figure soon.
The city's low-tax and business-friendly regulatory framework have already encouraged crypto exchanges like OKX, and Binance to acquire licences to operate in the city. Singaporean exchange Bytbit moved its global headquarters from Singapore to Dubai in March 2022.
In 2021, the Dubai Media Office announced that the Dubai World Trade Centre would become an official crypto zone where all digital asset companies can operate. The Media Office further stated that a new regulatory framework would be implemented to prevent money laundering and make the crypto space safer. A new regulatory body called Dubai's Virtual Assets Regulation Authority was also created to initiate applications, oversee new licensees, share expertise and drive adoption worldwide.
Abu Dhabi has launched the Middle East, Africa, and Asia Crypto and Blockchain Association (MEACBA). This non-profit organization aims to bring together industry players to discuss strategies and challenges while integrating digital assets into key economic sectors. The chairman of MEACBA, Ahmed Al Zaabi, said in a statement to the national news that "the UAE is heading to become one of the best international financial centres, and we want to be a recognized contributor to the development of the diversified and sustained development of the UAE economy."
The UAE has always been known for its innovative and forward-thinking mindset and has embraced new digital payment options and cryptocurrency early on. This has established the country as one of the leaders in the Middle East, with Dubai serving as a hub for innovation, networking, and the finance and tech industry. This has helped attract investors and businesses to the country, which has boosted its economy.
Singapore has a reputation as a cryptocurrency-friendly country and has a long history with cryptocurrency and blockchain technology. In 2014, the Monetary Authority of Singapore (MAS) issued guidelines on the regulation of virtual currencies, stating that while it would not regulate virtual currencies per se, it would regulate activities that involve virtual currencies if they fall within the scope of existing laws and regulations.
The Inland Revenue Authority of Singapore (IRAS) classified Ethereum, Bitcoin, and other cryptos as Digital Payment Tokens. There is no capital gains tax on crypto in Singapore, and the only tax that you will have to pay is for business activities that use crypto, which is the normal form of taxation for any sort of money, and it comes under the category of income tax.
Brazil, the largest economy in Latin America, has taken a significant step forward in recognizing cryptocurrency as both a payment method and an investment in the country. In late 2022, former President Jair Bolsonaro signed a bill legalizing the use of cryptocurrencies in the country. Although cryptocurrencies are not considered legal tender, the bill establishes a licensing regime for virtual asset service providers. It introduces a legal definition of digital currencies.
This move by Brazil highlights the increasing acceptance of cryptocurrencies as a legitimate form of payment and investment.
One city in Brazil, Rio de Janeiro, has even allowed taxpayers to pay their taxes using cryptocurrency. This move was made possible through a partnership with the local cryptocurrency exchange, Hashdex, and aims to make tax payments more convenient for citizens .
In 2021, El Salvador made headlines by becoming the world's first country to make Bitcoin legal tender. The move was celebrated by crypto enthusiasts worldwide but met with skepticism from some experts, including the International Monetary Fund (IMF). The IMF urged the government of El Salvador to remove Bitcoin's legal tender status, citing concerns over the cryptocurrency's volatility and the potential risks it poses to the country's financial system.
The IMF's concerns about El Salvador's adoption of bitcoin as legal tender were echoed by Fitch Ratings, which downgraded the country further into junk territory. The move was seen as a blow to the country's economy, which has struggled recently. As a side note, the IMF successfully convinced Argentina to discourage the use of cryptocurrencies in the country in return for a new loan.
Despite these concerns, El Salvador has continued to push forward with adopting Bitcoin. The government has taken steps to promote the use of bitcoin, including offering $30 to every citizen who downloads the government's wallet. The government has also announced plans to build a geothermal-powered bitcoin mining facility, further cementing the country's commitment to the cryptocurrency.
Proponents of Bitcoin's adoption as legal tender argue that it offers several advantages over traditional fiat currencies. Bitcoin is decentralized, meaning that any government or financial institution does not control it. This gives users more control over their money and can protect them from the inflationary policies of governments. Bitcoin also allows for fast and low-cost transactions, making it a more efficient medium of exchange than traditional payment methods.
However, critics argue that Bitcoin's volatility and lack of regulation make it an unsuitable currency for everyday use. The value of bitcoin could fluctuate wildly, creating instability in the economy if it were widely adopted. There are also concerns that the lack of regulation could make bitcoin a haven for money laundering and other illicit activities.
Despite these challenges, El Salvador remains committed to its adoption of bitcoin. The country's leaders believe that bitcoin can help to promote financial inclusion and stimulate economic growth. Only time will tell whether El Salvador's gamble on bitcoin will pay off. Still, the country's decision has sparked a global conversation about the future of money and the role of cryptocurrencies in the global economy. Finally, it’s important to note that El Salvador only supports Bitcoin and does not embrace other types of cryptocurrencies.
While the United States has been a leader in the crypto industry, it faces increasing competition from other regions, such as Asia and the Middle East. Governments worldwide are also adopting different approaches to cryptocurrencies, with some countries embracing them as an alternative to traditional banking systems.
In contrast, others are more cautious and implement regulations to mitigate potential risks. Hong Kong and Dubai, for example, have shown support for developing the crypto industry by introducing favorable regulatory frameworks and offering tax incentives to crypto companies.
As the crypto industry continues to evolve, it will be interesting to see how different governments and regions adapt to the changing landscape and position themselves to benefit from digital assets' potential economic opportunities.
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