US Regulatory Uncertainty is Stifling Innovation - Fact or Fiction?

The ongoing saga of US cryptocurrency and blockchain regulation seems to be never-ending. It first became a hot topic in light of the ICO boom of 2017 and 2018, as the SEC started to zero in on the likelihood of unregulated sales of securities. Since the recent bull run on Bitcoin and Facebook’s subsequent Libra announcement, crypto regulation is once again a heated talking point for the US regulators. However, although discussions continue to rumble on, there’s still no firm end in sight. 

The lack of any clear regulatory direction has led many critics to issue ominous predictions the US will fall behind other countries as a leader in the fintech innovation space. But with so much focus on the world’s biggest economy, is that really happening?  Are other countries making headway where the US is stalling? 

Well, not everywhere. For example, reports suggest that India is on the verge of implementing a full-scale ban on cryptocurrencies. But there are various other jurisdictions across Europe and Asia which are currently proving to be far more friendly to fintech innovation than the US. Here are a few examples of countries which are luring fintech investment and entrepreneurial talent away from the US.  

Switzerland

The Swiss Crypto Valley Venture Capital investment company recently released its quarterly report detailing the country’s top 50 blockchain companies. It confirms that the Alpine nation is now home to six of the world’s biggest blockchain unicorns, including Ethereum, Cardano, and DFinity. The total valuation of the top 50 firms more than doubled in the first half of 2019, to over $40bn. 

Even though Facebook is a US company, it opted for Switzerland as a base for the Libra Association, most likely due to the country’s open approach to blockchain and fintech. Switzerland also offers a clear framework for cryptocurrency brokers to apply for banking status.

South Korea

Although ICO’s remain banned in South Korea, the country has recently confirmed a significant step forward in the launch of a “regulation-free blockchain region” for the port of Busan. As you could expect for a port city, there’s a heavy focus on the supply chain and logistics sectors. 

However, the local government has confirmed plans to collaborate with banking group BNK for the issuance of a stablecoin. It will be backed 1:1 by the local currency and will be launched together with an exclusive wallet which will handle payment services. The move is part of a Korean government initiative to trial new technologies, with six other regions selected for experimentation in areas such as healthcare and autonomous vehicles. 

Singapore

Singapore has long been on the cutting-edge of startup culture, and of course, it’s no different in the area of fintech. Many of the biggest names in cryptocurrency have incorporated in the island nation, including Litecoin, Tron, NEO, and VeChain. The total valuation of the Singaporean crypto sector in the first quarter of 2019 was put at $8.3bn. 

More recently, Binance opened a local exchange in Singapore, offering users the opportunity to trade their Singapore dollars for cryptocurrencies. This came about within weeks of the world’s biggest exchange closing its doors to US users, while it works through the necessary regulatory hurdles to open a compliant exchange there.

Malta

On the subject of Binance, there’s plenty of reasons why the trading platform opted to base its global headquarters in Malta. The country is one of the world leaders in its willingness to embrace fintech and blockchain technology. It was among the first to issue a regulatory framework for cryptocurrency and blockchain firms, including guidelines for ICOs and exchanges. 

The Maltese Financial Services Authority (MFSA) continues in its quest to establish Malta as the “blockchain island.” It has published a comprehensive fintech strategy which covers six pillars including security, knowledge and education, and international connections. 

Estonia

The tiny Baltic country is no stranger to innovation and has gone further than most in an attempt to foster a digital society with a focus on fintech. 99% of financial transactions in Estonia take place digitally and it remains the only country to offer an e-residency program enabling foreign citizens to access its business infrastructure. 

Global money services firm Transferwise and blockchain giant Guardtime are both based out of Estonia. Along with Malta, Estonia is one of the few countries in Europe that makes it easy to set up a cryptocurrency exchange, with a well-defined procedure for obtaining a license from the financial intelligence unit. 

The US, and Silicon Valley in particular, still tops the rest of the world for fintech VC funding overall. However, it’s evident that crypto firms are starting to favor other locations. At the same time, firms including Bancor, Binance, and Bittrex have taken measures to restrict their services for US traders and investors. It may not have happened yet, but the forecast that other countries could start to outpace the US in fintech innovation could still come to fruition.