Just the facts: A regulation by enforcement only approach is hurting American leadership, jobs, and innovation

Over the weekend, the G20 officially agreed to a global minimum baseline set of regulatory guardrails for crypto. With this development, the world’s leading economies have underscored the importance of clear and tailored rules for digital asset markets. The US Congress understands this, and has been moving forward on a bipartisan basis to enact legislation. In this context, the US Securities and Exchange Commission’s regulation by enforcement approach is not only out of step with the rest of the world, which is seeking to move forward with clear frameworks, but also with the important steps being taken in Congress. Tomorrow, the chair of the SEC will testify in front of the Senate Banking Committee. Today we’re sharing facts about the impact of the SEC’s regulation by enforcement only approach on American leadership, jobs, and innovation compared to the majority of the world’s global powers.

The regulation by enforcement only approach is threatening US global leadership 

Last week we released a report documenting that 83% of G20 members and major financial hubs have made progress toward regulatory clarity for crypto. And with the G20’s global baseline regulatory guardrails for crypto introduced this weekend – which they’ll monitor for consistent implementation – countries that have rules will accelerate progress, and those that don’t now have a roadmap. This policy progress is in response to global momentum for the regulated, responsible use of cryptocurrency as countries race to become crypto hubs and reap the economic and other competitive benefits of serving the world’s digital asset holders—now 420 million and counting.

Here are a few examples of regions that understand the economic potential of building the future of the cryptoeconomy on their shores.

• EU: Adopted Markets in Crypto-Assets (MiCA) regulation to bring regulatory clarity to all 27 EU member states

• UK: On track to produce its own framework for crypto with the Financial Services and Markets Bill completing its passage through Parliament, and the UK Treasury’s recent consultation paper

• UAE: Three of its leading regulators have developed frameworks to become a global crypto hub, in a country where nearly 30% of its population owns crypto

• Japan: Prime Minister included web3 as part of his administration's “new capitalism” economic policy, designed to solve social issues by driving growth and innovation

• Brazil: The current President moving forward to enact regulations – based on legislation adopted under the previous presidency - to position Brazil as a crypto hub across Latin America

• Hong Kong: Developed a crypto regulatory framework that went into effect in June as part of an effort to keep Hong Kong as a global financial center

• Australia: Undertook a comprehensive token-mapping consultation, and is expecting to propose a crypto licensing framework in Q4

• Canada: Provincial regulators working in concert with federal authorities to develop a strong crypto regulatory framework for crypto markets in Canada

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Unfortunately the US isn’t one of these leaders

While the majority of the world’s economic powers are embracing a technology that can increase economic opportunity, the SEC’s regulation by enforcement only approach is costing the US millions of jobs and pushing opportunity offshore. The enforcement only approach continues despite the Chair’s testimony in May 2021 that “right now [cryptocurrency exchanges] do not have a regulatory framework either at the SEC or our sister agency the Commodity Futures Trading Commission.” The enforcement only approach continues despite 9 in 10 Americans believing it’s time to update a financial system so as to make it more fair and where progress is being slowed down by the status quo. This enforcement only approach continues despite 52 million people – or 1 in 5 Americans – owning crypto. And this enforcement only approach continues despite courts having ruled against the SEC in a number of high profile instances, including the Grayscale case where the court found that the SEC acted in an “arbitrary and capricious” manner.

Despite the SEC’s enforcement-based approach, Congress is stepping up to advance comprehensive crypto legislation. These efforts are critical to ensure the US does not fall further behind other jurisdictions. A legislative approach to creating crypto regulation is the best way to ensure consumer protection, and also ensure that digital asset innovation and the jobs created by it remain in the US. 

Regulatory uncertainty of the enforcement only approach puts 4 million jobs at risk by 2030

The regulation by enforcement only approach is putting the US at risk of losing out on 1 million developer jobs and 3 million related non-technical jobs over the next 7 years as web3 development increasingly moves overseas.

The US's share of global web3 development has already dropped from 40% to 29% in the last 5 years fueled by uncertainty and a regulation by enforcement only approach in the US.

On average the US is losing almost 2% of the web3 developer share every year. That means high-quality, good-paying jobs are leaving the US to innovate in locations with better conditions like clear regulation or a commitment to technological leadership.

The enforcement only approach is halting US innovation  

American businesses also need clear legislation for innovation to thrive onshore  – and this isn’t just our opinion. It’s a fact.

• 87% of surveyed Fortune 500 executives indicate clear crypto rules are vital for sustaining US leadership in the global financial system

• 92% of surveyed Fortune 500 executives agree that policymakers should develop new rules for these technologies, instead of enforcing older rules developed for older technologies

• 46% of surveyed Fortune 500 execs count regulatory murkiness as a barrier to investment

• 91% agree lack of clear regulation makes the crypto space hard to navigate

• 52% are holding off entirely until regulation is established

But instead of focusing on providing a clear, commonsense regulation, the SEC is bringing enforcement actions against law-abiding American companies like Coinbase and Grayscale that are doing everything they can do to follow the rules. 

As it was for web1 and web2, where the US government had an intentional strategy to leverage the technology to advance the national interest, the US has a real chance to be the innovation leader in the future of the cryptoeconomy, but only if it can get the regulations right. We cannot afford to spend billions of dollars begging to bring the crypto industry back to American soil, like we’ve done with the chip industry and American manufacturing in general. Crypto is not going away. It cannot be uninvented. Americans want to own crypto, and they want to own it responsibly. It’s time for America to bring this industry onshore where innovation can flourish, jobs can grow, and consumers can be properly protected.

You can be part of the solution. Join the Stand with Crypto Alliance to be part of a coalition of more than 60,000 (and counting) crypto advocates that want to defend crypto’s future in America.