Following a week when President Trump, Treasury Secretary Mnuchin, Federal Reserve Chairman Powell, the US Senate and the US House of Representatives piled on their dose of skepticism, fear-mongering, and heightened alerting on the subject of cryptocurrencies, we are not in a better position and I fear the downward spiralling is accelerating.
(I’ve written my analysis on the recent hearings, Thoughts and Recommendations on the Facebook Libra Congressional Hearings)
As if suddenly, the future of blockchain technologies and cryptocurrency were in the hands of US politicians. After years of silence, legislators are stealing the thunder from the SEC and CFTC, the key regulators who were the previous headliners on that topic.
A dominant part of the narrative is that the US dollar and US security are now at risk because of Bitcoin and the eventual rise of other emerging cryptocurrencies. The gist of these absurd arguments are: 1) crypto will weaken the US dollar’s world dominance, and 2) crypto can go in the hands of terrorists.
What these comments fail to recognize is that while the fears are aimed at the US dollar and US security, they also target and affect the burgeoning US blockchain ecosystem sector that has been a leading one around the world.
By choking or stunting the growth of cryptocurrencies and blockchain technologies via bad policies, fear-mongering, excessive regulation, or plain chaos in statements, there is an immediate direct effect on US entrepreneurs and US companies that are operating in this industry.
This is bad because, if US blockchain companies continue to lose global prominence and market shares, that certainly contributes to lowering US prominence in this field, and in fact has an exacerbating effect on the risks being mentioned.
Isn’t it better to let US companies be dominant rather than Chinese or Korean ones?
Let’s look at the rankings of the top exchanges around the world. None of the top 4 US crypto exchanges are among the top 10 anymore, and two of them are barely hanging-in to stay in the top 100. Specifically, in the past year alone, Coinbase slipped from the #6 position to #29, Kraken slided from #11 to #37, whereas Poloniex and Gemini tumbled respectively from #24 to #75, and #38 to #76.
If the above chart is not a wake-up call, I’m not sure what is.
Given that the US has the most fertile tech startup ecosystem, and there is a long history of US tech companies dominating their fields around the world, these companies and their future nemeses are destined to benefit (or get hurt) the most, if regulatory uncertainty, complacency (FOIA documents reveal cryptocurrency guidance has not been a priority for the IRS), and (now) political fear mongering persist.
We started on a good footing. The US/Canada’s fingerprints were all over crypto. Most of Bitcoin’s core developers were US (or Canada) based. Ethereum was conceived in Canada, its strongest proxy (ConsenSys) is US based, and its largest Meetup gatherings are still in the US and Canada. Some of the first large scale cryptocurrency exchanges were US based (Coinbase, Poloniex, Kraken, Gemini). A dominant percentage of blockchain venture capital spending (40% according to CBInsights from the last 5 years) is going to US companies.
So what happened? Why are we choking this excellent start?
The point of contention here is not just the US dollar. It is US tech. If you weaken US tech, you weaken US companies that are making forays into cryptocurrencies, and you contribute to replacing them by foreign companies.
The ingenuity of US entrepreneurs can prevail, only and only if the level-playing continues. Currently, regulation and political pressures are tripping-up progress and changing the course of history.
Blockchain and cryptocurrencies are fair game anywhere in the world from an implementation perspective, because they are open technologies for anyone to innovate on top of. Let’s take the Facebook/Libra announcement as another example. Despite its non-pure blockchain/cryptocurrency characteristics, it is by far the most sophisticated and ambitious launch of any cryptocurrency-related project out there in the world. And it came from a US company.
Let’s not throw the baby out with the bath water.
I’m not anti-US regulation. I’m for it, done right, and done swiftly. The current status quo of lingering, discussing, and delaying is like death by a thousand cuts. The urgency to act should not be caused by Facebook entering the fray, but rather because it is the right thing to do.
It’s better to tame and feed the beast you own, than to starve it, forcing it to flee, breed in the jungle and return with its grown-up siblings to fight you and bite you.