Europe on Track to Become Global Crypto Hub

Europe is poised to become a major hub of innovation and growth for digital assets and blockchain technology, as firms race to build up operations ahead of the implementation of sweeping new regulations that promote growth and protect investors.

Galaxy, one of the industry’s biggest providers of financial and investment services, has been expanding its footprint in the region, from hiring its first European CEO to building up its investment banking team.

“We have about 25% of our employees now that reside outside of the U.S.,” said Chris Ferraro, president and chief investment officer at Galaxy, on the company’s earnings call in early November. “That will likely continue to trend up.”

Other major crypto companies are following suit and expanding their operations outside the U.S. Andreessen Horowitz announced that it would open its first office outside of the U.S. in London, calling the U.K. a “fintech regulatory superpower.” Coinbase, the first publicly traded crypto exchange in the U.S., started to accelerate its expansion into Europe heading into 2023 and recently opened its EU hub in Ireland.

At the center of these strategic moves is the EU’s Markets in Crypto Assets (MiCA) regulation, one of the first major implementations of a regulatory framework specifically tailored toward the crypto industry, which takes effect next year. Though the legislation is far from a perfect solution, the existence of some workable framework for companies to operate has drawn support and a willingness to move toward from industry participants.

The enactment of comprehensive legislation isn’t just drawing innovation toward Europe; it’s actively bringing businesses out of the U.S. – and U.S. policymakers are already warning of its impact. Securities and Exchange Commission’s Hester Peirce recently spoke about the EU’s active approach to regulating crypto and the U.S.’s inaction, stating that the U.S. is “shooting [itself] in the foot” by not enacting a regulatory regime like MiCA.

Read more: US Needs’ Rules of the Road’ for Crypto or Risk Falling Behind in Market Leadership: Global Regulatory Officer

U.S. House Financial Services Committee Chair Patrick McHenry previously told CoinDesk that MiCA is a clear showing that Europe is “ahead of the game of the United States,” to a point that should “send chills up the spines of Americans.” For Rep. McHenry, MiCA stands to provide significant economic value to Europe through its legalization of stablecoins and the promotion of euro-backed stablecoins.

The stablecoin market is massive, boasting a $125 billion market cap that accounts for over 10% of the global crypto market. USD-backed stables account for around 99% of the stablecoin market capitalization. The second-largest stablecoin denomination, the euro, contributes only around $535 million to the market.

A euro-based stablecoin isn’t just a “nice to have.” It’s essential to the health of European markets and would serve as an upgrade for one of the most widely used currencies in the world, from providing 24/7 transfers and settlements to eliminating exchange exposure for European investors.

This isn’t to say the U.S. is simply sitting on its hands while Europe chips away at the USD market share. Instead, the U.S. actively pushes stablecoin innovation offshore by restricting bank access and overly burdensome regulations.

In January, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) issued a joint statement both warning and closing the door on banks interacting with crypto networks and stablecoin issuers. The statement was the most explicit statement of the agencies’ viewpoints on crypto-related activities to date. A few weeks later, the Fed confirmed this policy and expanded its previous guidance to include all banks by denying Avanti’s membership bid for engaging in crypto-related activities.

Read more: Over 10 Years Later, the US Is Finally Ready For a Bitcoin ETF

Rather than having a single entity engage and regulate stablecoins, the U.S. government simultaneously brought actions through other alphabet agencies, namely the SEC. By February, the SEC sent a Wells Notice to Paxos over the issuance of BUSD, a US-based stablecoin issued under the oversight of the New York Department of Financial Services. The NYDFS subsequently ordered Paxos to wind down BUSD. Most recently, the SEC subpoenaed PayPal over its freshly minted stablecoin, PYUSD.

While the U.S. regulatory path remains blurry, digital asset firms are left with little choice but to shift innovative efforts to friendlier jurisdictions.

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