Regulatory arbitrage in crypto

Almost six years ago Marc Andreessen spelled out the playbook for creating the next Silicon Valley: Don’t copy the Valley but “figure out what domain is (or could be) specific to a specific region—and then removing the regulatory hurdles for that particular domain”.

Unfortunately for the Valley (and North America in general), a few regions have embraced this approach with cryptocurrencies and we are seeing more and more crypto companies coming out of the UK, Malta, Singapore, Hong Kong and other jurisdictions that are more friendly towards crypto than the US or Canada are. 

Just over the last year, we at V1 have done two crypto investments in Europe with Guesser (Madrid) and Nexus Mutual (London). A third (not yet announced) crypto investment is currently based in the US, but is considering a move to Asia. And I have heard from a number of US crypto projects that have been abandoned by the founders because of regulatory threats to their business.

Crypto needs to be regulated. But in order to foster innovation and allow new projects to innovate and experiment, we need a better legal framework. I think everyone in the crypto industry was happy to see SEC Commissioner Hester Peirce’s “Safe Harbor” proposal a few weeks ago but it is unfortunately too early to tell if this proposal actually turns into law.

Ideas, teams and capital are more fluid than ever before. This is particularly true in crypto that often operates with distributed teams, an open source spirit and on the idea of global currencies. I hope the US and Canada are starting to take a leadership role in coming up with crypto regulations that protect both users and start-ups and can find the right balance between enabling innovation and putting safeguards in place.

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