The EU’s leisurely crypto-regulation moves are conflicting opinions
Crypto regulation in Europe was never going to be one size fits all, but a slow approach might be close.
The European Union is in no rush to regulate cryptocurrencies, with European finance ministers finding the cryptocurrency space to pose no immediate threat to financial stability, and therefore favouring a wait and see approach to gather more data and to better understand where it's going.
The news has generally been positively received by Europe-based projects worried about a clampdown, but it's also raised concerns about the potential of cross-jurisdictional chafing as individual member nations push forward on their own in response to local initiatives.
"The EU has been prudent in taking a slow, methodical approach to blockchain regulation, conducting thorough research on the subject before enacting specific measures," said Michael Borowiec, communications lead at the Zug-based (Switzerland) Lisk project. "The regulation of blockchain technology should be considered at an inter-governmental level, but this will take time.
"Due to the power and far-reaching influence of the EU, the legislation written today will have consequences well beyond the region. As such, it is important that legislators carefully consider all angles before committing to a particular approach."
Gabriele Giancola, CEO and co-founder of qiibee, also based in Switzerland's "crypto canton" of Zug, said the results would not have been perturbing either way, describing the question of crypto regulation as a "win win situation" for the continent.
"There's already been a significant shift towards a more transparent market, and ultimately it is still a win-win situation for Europe," he said. "If the results of the analysis by the European authorities show that increased regulation is needed, this will only prove to be positive for the wider acceptance of the crypto and blockchain space... if the opposite is true, and the analysis shows that there is no imminent need to further regulate the space, that should reignite confidence in the space."
However, Switzerland is known for its welcoming attitude toward cryptocurrency, even backtracking on recent regulatory moves that risked making the country a less-attractive destination for cryptocurrency projects.
The global nature of digital assets means regulation anywhere affects everyone, but for the most part, Swiss-based projects can probably rest easier than most whenever they get news that no EU-wide crypto regulations are imminent.
Nicolas Gilot, co-CEO of the Estonia-registered Ultra project, also points out that Switzerland is not a member of the EU, so many Swiss projects might certainly rest easy either way.
"Imposing early regulation on member states could prove difficult with many countries militating the effects and consequences it could have on blockchain development and its potential to stifle crypto adoption. For example, as Switzerland is not a member of the European Union, it would certainly cement its dominant position in the cryptocurrency sphere," he says.
Wait and see
The leisurely approach might be a sensible tack though, Gilot says. EU-wide regulations which stray too far on either side of propriety – inadequate risk mitigation on one side and stifling innovation on the other side – might just make things worse.
It's especially difficult given the number and diversity of member states, he notes.
"A strong consensus is needed for a united framework and regulatory oversight in Europe in order to harness potential opportunities within an open ecosystem, while also alleviating potential risks."
A measured approach still has downsides though, especially for other jurisdictions that might want to take a cue from the EU as a whole, and fledgling businesses, such as exchanges, whose expansion depends more heavily on unified regulatory approaches around the world.
"A lack of EU-wide crypto regulation is a deterrent to blockchain innovation and will continue to hinder adoption of the technology by mainstream financial service providers going forward," said Nick Cowan, CEO of the Gibraltar Blockchain Exchange, which as one might expect is based in Gibraltar.
"The EU needs uniform regulation to foster a sustainable future for the industry. Sensible legislation that has the backing of blockchain adopters and EU regulators alike will balance the need for further innovation with appropriate consumer protection."
Cowan also points to the side-effect of smaller jurisdictions taking the lead as a positive development, but suggests it's no substitute for uniform regulations.
"Certain smaller jurisdictions in the EU are taking a lead, having already introduced best practice regulatory frameworks for blockchain businesses. Officials in these jurisdictions are also reaching out to key financial services stakeholders to educate them on the tremendous potential of decentralised technology and to gain their support for blockchain businesses. But this is only the beginning."
"Individual national solutions to the regulatory challenge would not make much sense, given the high degree of interconnectedness of the EU market," agrees Giancola. "The fact that individuals are often invested across different countries will also make it difficult to alleviate the risks involved. Even if individual countries were to set up their own regulations, we can expect this to vary greatly from country to country, posing an issue for regulators once it comes to unifying regulations in the EU."
The complexity of the regulatory issues at hand, the diversity and sheer number of jurisdictions in Europe, the presence of semi-external factors like Switzerland as a magnet for blockchain startups and the diversity of projects within the emerging cryptocurrency space, means a one-size-fits-all approach was probably never going to be possible.
A wait and see strategy has its downsides, but might be the most sensible thing to do right now – especially with the issue stretching beyond Europe alone.
"The EU is potentially waiting to take a cue from America," Gilot suggests.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.