Seth Hertlein

One of the few remaining native European crypto platforms of any consequence just disappeared! Of course, I’m referring to Bitstamp being swallowed up by Robinhood, a larger, more profitable and more successful American competitor [1]. But, how could this be? Wasn’t MiCA supposed to be the silver bullet that would finally give European tech the competitive advantage it has lacked for so long? At least, that’s what we were told… MiCA was heralded by the EU institutions (and much of the crypto industry) as ensuring that Europe “wouldn’t lose Web3 the way it lost Web2.” That line, in particular, was quoted ad nauseum. Except, MiCA (together with the constellation of regulations the EU continues to erect around it) guarantees just the opposite, as I have been saying for some time [2]. The EU fails to grasp why it lost Web2 (and, indeed, many other industries) and seems dead set on repeating the mistakes of the past. They’re doing the same with AI. Many Americans who don’t understand Europe still point to MiCA to suggest that the US is falling behind. But, I’m a big proponent of Beer’s systems theory that the purpose of a system is what it does (regardless of what it was intended to do) [3]. According to Beer’s razor, MiCA’s purpose is to make the EU uncompetitive in yet another emerging tech sector. Bitstamp is evidence that the MiCA effect has begun even before MiCA has fully come into force. The question now is, was this outcome predictable? Was it avoidable? Of course it was! In a research note I published in April 2022 entitled “How Can Europe Lead Innovation And Win Web3? Ledger’s 4 Recommendations For EU Policymakers” [4], I wrote: One of my 4 recommendations was to “start over on [MiCA] with an emphasis on enhancing EU competitiveness and with healthy input from technical experts.” Of course, I knew even as I wrote it that the EU would press forward with its “regulate early and often” strategy (if you can call that a strategy), but it was important to state for the record nevertheless. They won’t change course even now. At the time I wrote that, I thought the UK was well positioned to steal the crown and establish itself as a global crypto hub. They were, at least, saying all the right things. I tried to warn them, too, that to realize the potential of crypto for their economy, they would need to rein in their regulators. In a speech I gave at Westminster in January [5], I highlighted this and used one of my favorite Ronald Reagan quotes to make the point: “Government is not the solution to our problem, government is the problem.” I said this to urge the British government not to follow the self-destructive path of the EU. Sadly for UK citizens, my message was not received. Perhaps I should have used a Thatcher quote? 🤷‍♂️ But, alas, the UK will not become the global crypto hub it once dreamed to be. So, where is the future brightest? In places that still value and protect freedom, of course! Value creation flows from experimentation, and experimentation necessarily involves risk. Growth occurs where risk-taking is not punished. Innovators do not need regulatory clarity - innovators thrive in the unknown. In fact, they create it. Their risk does not come from a lack of clarity, but from regulation itself. Regulation serves to impose what is; only freedom enables what can be. Today, I believe emerging markets are best positioned to realize the potential of crypto because they tend to have lower regulatory burdens. Through crypto, APAC, LATAM, and Africa have an opportunity to leapfrog the legacy markets that are so intent on using state power to protect the status quo. But, they must choose to seize it. The temptation will be great to follow the West toward failure. Although, despite its many missteps, I wouldn’t write-off the US yet, either. The US isn’t saddled with the same structural problems as Europe and, though it has been weakening of late, the US remains far more risk tolerant. With a few personnel changes at the federal level, the US crypto industry will be off to the races once again. The smartest thing governments can do to position their economies for success in the industries of tomorrow is also the easiest: nothing! Simply stay out of the way! Let builders build. This is how all progress is made. In the end, MiCA (together with its regulatory constellation) will be yet another millstone the EU hung around its own neck. When it comes to global competitiveness, overregulating is the surest way to lose, and no one is better at it than the EU. Farewell, Bitstamp! 🫡

By now, you’ve probably all seen the headlines. In just one week’s time the Senate voted to overturn SEC Staff Accounting Bulletin (SAB) 121, which prevented banks from custodying digital assets; the House passed the Financial Innovation and Technology for the 21st Century Act, or FIT21 - the first comprehensive regulatory package for crypto to pass a chamber of Congress; and in a surprise turnaround yesterday, the SEC approved Ethereum ETFs for listing on national securities exchanges. Each of these momentous and largely unexpected outcomes was accomplished by significant numbers of Democrats (including Senate Majority Leader Chuck Schumer and former Speaker Nancy Pelosi) breaking ranks with well-documented anti-crypto crusaders the likes of Elizabeth Warren, Maxine Waters, and even the White House. But amidst the wonky drama of procedural politics, it’s easy to miss the deeper story: why did this happen, and why all at once? I won’t bury the lede. The real story here is that crypto is now, for the first time, an electoral force in American politics. I’ll give you four data points that converged in the Democrats’ about-face on crypto this week. First, a recent Harris poll [1] of swing state voters sponsored by @Ledger-investor @DCGco found that more than a quarter of voters said they are actively weighing political candidates’ positions on digital assets when making their election decisions; one in five registered voters in battleground states consider crypto to be a major policy issue in the 2024 election; and roughly half of voters agreed with the statement, “I don’t trust candidates that interfere with crypto.” So, how many of these crypto voters are there? Recent Morning Consult data suggests 17% of the U.S. population, or around 57 million Americans, own crypto today [2]. If half of crypto owners cast their votes based on the candidates’ positions on crypto, as the DCG/Harris poll suggests they might, that is more than enough to swing senate or presidential races in close states. As much as money matters in politics, and I’ll get to that next, votes are still the dominant currency in Washington. Third, the crypto industry is finally making its presence felt in the DC money game. Like it or hate it, fundraising is a fact of life in American politics. Up to this cycle, crypto was not sitting at the donor table; (and therefore) it was on the menu. That has started to change with groups like the Fairshake PAC raising over $100 million to support pro-crypto candidates in both parties. Fairshake’s efforts are now famously credited with torpedoing the senate dreams of Elizabeth Warren protege, Katie Porter, and DC took notice [3]. Crypto-aligned PACs also boosted several pro-crypto Democrats to primary victories in Alabama, Texas and Maryland [4]. As noticeable as these wins are to crypto policy nerds like me, they’re just tremors on the overall political landscape - we’ve yet to see the big one. Finally, while all of these factors helped set the stage, the wrecking ball that shattered the Democratic wall of opposition to crypto was none other than Donald Trump taking questions at a crypto-centric fundraiser on May 8th. In a 30-second clip posted on X, the former President stated that, “if you like crypto, you better vote for Trump,” and just like that, the ground shifted in Washington [5]. I personally believe that most Democrats didn’t and don’t have a particular animosity toward crypto, but, with a few notable exceptions, they were as a group more or less content to enable Warren, Gensler, and others in the Administration to wage their war of persecution. That is, until the threat of losing their seat, or their chamber of Congress, or the White House became real enough. With Biden’s approval rating in the low ‘30s, Trump’s embrace of crypto suddenly made it a hill many Democrats aren’t willing to die on. So, as ever, it all comes down to politics. The many crypto lobbyists who spent the last three years stalking the halls of Congress in vain feel vindicated by this week’s events - and they should! They deserve to take a win. But, when the afterglow of this week has faded, how then should we think about the 71 Democrats who crossed over to vote for FIT21? Have we converted them into crypto true believers? Or, do they simply not want to lose over crypto in November? I tend to think it’s the latter, and that’s ok. If this is truly a power we now have, then we can work with that! Winning in Washington is a long game, but time is on our side. The average age of the Democrats who voted for FIT is 51; the average age of those who voted against is 63. As boomers age out of Congress, acceptance of crypto will only grow. I’ll leave you with this thought: in crypto, we count confirmations. We've now had a few confirmations of our newfound political power, but we won’t have finality on the question until we score a major upset. The senate races in Ohio and Montana are the two I’m watching this cycle. Both could result in unseating longstanding anti-crypto Democrats on the Banking Committee. Today, that seems unthinkable, but just one week ago, so did all of this.