US Crypto Regulation Is Forcing Innovation Offshore

Author: Christina Comben Date: 25 Oct 2018

Whatever your line of business within the blockchain space, if you’re a legitimate company who wants to do right by your investors, as we do, you’ll welcome regulation. After all, no one wants to see rookie investors getting scammed out of their money or left holding the private keys to a bunch of tokens with no value.
And it isn’t only retail investors who stand to suffer from an under-regulated industry. Businesses who want the backing of traditional investors and to earn the trust of the wider public (that would be all of us!) can’t operate in an environment of uncertainty. Uncertainty is the enemy of all businesses.
If you can’t guarantee that what you do won’t suddenly be made illegal, you can’t get investors to back your project. Period.
So, regulation is necessary to rid the crypto space of its criminal associations and open the doorway to mass adoption. The right regulation, that is, the type of comprehensive, flexible, and sensible regulation that allows crypto companies to work within a framework of certainty, without inhibiting innovation.

Crypto Regulation Around the World

Regulation has taken many different shapes and forms over the past few years in the cryptocurrency world. Some countries, most notably China, have outright banned cryptocurrencies and ICOs. Yet they’re positively bullish on blockchain projects and becoming a leader in this emerging technology.
Other countries, like Singapore and Switzerland, have adopted a principle-based case-by-case approach that also allows for tokens to be utilities. And means that companies can hold token sales without the fear of being tapped on the shoulder by the regulating body in their country afterward.
Then there are smaller countries like Lichtenstein and Malta that are outright embracing blockchain technology and crypto companies.
Malta opened everybody’s eyes earlier this year when they passed three new laws to regulate ICOs, cryptocurrency, and DLT. By doing this, they proved themselves to be innovative and forward-thinking, with flexible yet clear guidelines that will attract innovation to their shores rather than send it away.
In fact, crypto powerhouse exchange Binance has already moved to Malta followed closely by BitBay, and several other key players.
The US, on the other hand, is a whole different story...

The US Is Sending Innovation Overseas

It’s strange that a country with some of the most innovative companies in the world would be so hostile to cryptocurrency and blockchain tech. Yet, the SEC labeling every cryptocurrency as a security, and delaying one Bitcoin ETF decision after another is forcing innovative companies to leave.
At first, the situation was just lacking in clarity with no clear rules in place. To give just one example, no one knew until a few months ago whether or not the SEC would label Etheruem as a security. And they didn’t even make the official announcement that was so eagerly awaited... The news just trickled out from an SEC employee.
Their latest stance with a focus on securities may help protect investors, but it will also prevent many from taking part in exciting projects--and limit startups with inadequate auditables or financial backing to hold an expensive regulated token issuing.
Digitex Futures has been asked several times when we will be available to US investors. The truth is that we’re leaving a lot of money on the table by not being able to invite them to take part--and the US is losing a lot of money as well. Major companies like ShapeShift, Digitex Futures, VideoCoin, and countless others were unable to allow US citizens to take part in their ICOs.
“Our ICO wasn’t open to investors in the United States,” CEO Adam Todd told NullTX. “The rules were just too blurry to think about registering here.”
Moreover, VideoCoin despite being conceived and built by American entrepreneur and CNET founder Halsey Minor registered itself in the Cayman Islands, while Digitex registered in Seychelles.
Neither company was able to allow US investors to take part--and both companies are unique in their fields. VideoCoin is looking to take on Amazon Web Services and win and Digitex is looking to shake up and corner the cryptos futures market.
Moreover, major exchanges BitMEX and Huobi are also unable to accept US investors. And due to tight regulation in their native Hong Kong and China, are registered in Seychelles and Singapore, respectively.

Impossible for Startups to Compete

Andrew Hinkes, General Counsel of Athena Blockchain and NYU School of Law Adjunct Professor says:
“The current application of US securities laws has created high barriers to entry for those who wish to sell tokens compared to many jurisdictions like Switzerland and Singapore that expressly recognize a form of “utility token” and require less compliance and disclosure than the US, which has drawn many issuers offshore and caused them to avoid selling assets to US persons.”
On top of that, the federal approach to government structure in the US means that each state has different rules when it comes to cryptocurrency. But as crypto regulation currently stands, blockchain companies must comply with 53 state/territory laws as well as the separate federal law if they want to conduct any kind of money transfer activity. “This is burdensome and expensive, especially for startups,” says Hinkes.
While there are signs that certain states including Delaware, Wyoming, and Vermont are making moves that are progressive towards blockchain, even creating a definition of a utility token, things are still a long way off.

The Takeaway

Until US regulators really understand what it is they are trying to regulate and until they catch up with innovation, it will continue to bloom elsewhere.
As Digitex gets closer to the launch date of version one and is working to create the number one crypto futures trading platform on the market, when US regulators do decide that they want to work with blockchain companies, we’ll be among the first to welcome US clients into our growing community.
Digitex Futures writers and/or guest authors may or may not have a vested interest in the Digitex Futures project and/or other businesses mentioned throughout the site. None of the content on Digitex Futures is investment advice nor is it a replacement for advice from a certified financial planner.