Web3 companies are turning their back on New York, driven away by Washington D.C.’s hard-line stance toward regulating the crypto sector. New York’s international significance in comparison to other financial powerhouses is waning as, in stark contrast, China and Hong Kong demonstrate their willingness to adapt and innovate.
Over the last 100 days, contrasting regulatory strategies have been on display in China and the U.S. The latter, after a turbulent 18-month period, seems to have reversed course, rolling out sensible regulations in Hong Kong that boost innovation and support sector growth. This key step was taken after Beijing authorities listened to, and backed, Hong Kong’s leadership – an approach in stark contradiction to that of U.S. securities regulators.
Omer Ozden, chairman of a Beijing-based Web3 investment fund, and erstwhile U.S. securities attorney practising in New York and Hong Kong, highlights the contrasting experiences of these jurisdictions. New York City’s mayor, Eric Adams, has consistently championed Web3, ran a pro-crypto campaign, and even accepted his first paychecks in bitcoin. Despite his efforts to chart a course for the city’s economic revival through embracing this technology, regulators in Washington D.C. are stubbornly sticking to their guns.
In 2021, China cracked down on the crypto sector, banning financial institutions from providing crypto-related services and forcing domestic crypto exchanges to shut down. This heavy-handed approach led to a flight of entrepreneurs, jobs, and capital from mainland China to Hong Kong, Singapore, Silicon Valley, among other places. Yet, in late 2022, Chinese authorities took stock of the damaging fallout and pivoted, adopting an impressively different direction. They demonstrated their willingness to foster an apt regulatory framework for cryptocurrencies, which is seen as aligned with central government’s thinking.
As Kong Kong’s financial regulators obtained Beijing’s backing for its aspirations, they were able to develop a robust regulatory structure that is designed to kickstart the struggling local economy and lay the foundation for the future development of regulations and innovation for the rest of China’s Web3 industry. This shift led to a quick recovery of Hong Kong’s economy.
Regrettably, as U.S. regulators adopt a similarly restrictive approach that was initially taken by China, the targeted industry is starting to move away. For instance, Coinbase, which has always endorsed a pro-regulation approach, is mulling over exiting the U.S. due to the prevailing regulatory environment. Yet, in contrast to U.S., Hong Kong’s regulators are developing a framework for stablecoin issuance, and a Hong Kong dollar-based stablecoin is apparently in the works.
The SEC‘s ‘regulation by enforcement’ approach, and its position that stablecoins are securities has importantly hung a Sword of Damocles over the heads of innovators, investors and highly-skilled workers, threatening to plummet at any given moment. Even as the U.S. continues to close crypto-friendly facilities, China’s state-owned banks and Hong Kong’s large banking establishments are welcoming crypto clients with open arms.
Worryingly, a small cadre of unelected regulators in Washington is wielding a disproportionate amount of power with impunity, counter to the aspirations of New York’s leadership and the 50 million Americans who utilize cryptocurrencies. If the nation maintains its current trajectory contrary to the desires of the country’s most populous city, there may be unpleasant consequences.
Unless federal legislators and New York embrace blockchain and take decisive action now, the city might lose two of its beloved attributes – money and freedom. The key question is no longer ‘What is a security?’, but ‘How do we foster innovation and economic growth?’, a matter that requires an urgent response.
Source: Coindesk
