The US GENIUS Act. Sounds impressive, right? A big, likely commendable, step forward in the Wild West of crypto regulation, to finally tame the stablecoin beast. But what if this “brilliant” move ends up spawning a global regulatory nightmare? Now that’s something to chew on! But what if, in its neo-palm tree splendor, it’s truly the blunder?

US Crypto Bill: A Regulatory Island?

Let's face it: the world doesn't operate in neatly defined national borders, especially when it comes to digital assets. We are talking about decentralized assets. The US going it alone, while appealing in theory, risks falling into a haphazard free for all that would be a bonanza for bad actors. It’s similar to constructing a brand new, state-of-the-art airport on an island without any flights connecting to it. Sure, it’s creative, innovative, striking – all of those things – but what’s the purpose if no one can truly use it to get anywhere else?

The core issue is regulatory arbitrage. Think of it like this: imagine corporations shopping around for the country with the lowest tax rates. Now imagine crypto firms taking the same approach, but with regulations. They’ll all congregate into jurisdictions with the worst rules, thus gutting critical consumer protection and making it a welcome mat for nefarious actors. The UK’s FCA is correct to be worried and to watch these developments closely. Unfortunately, the GENIUS Act, despite its best intentions, might do more harm than good and continue to drive this exodus.

Isn't it ironic? The US, striving for clarity and control, might actually be incentivizing companies to operate outside its reach, further complicating the regulatory landscape.

Race To The Bottom: Who Wins?

This brings us to the next, even more alarming possibility: regulatory race to the bottom. Countries, wanting to be the destination of choice for new crypto businesses and the jobs and taxes that come with them, would race to provide the lightest oversight. It's a dangerous game. Envision a world internationalized in its ecosystem, where victories on consumer protection are given up to the lords of factory farming. And we are left with a system that serves out nobody except the charlatans that Lord Chris Holmes was totally right to warn against.

This is more than just keeping average investors from being scammed. Ultimately it’s about the long-term health and sustainability of the crypto ecosystem. What’s needed instead is a “culture of compliance,” in the words of FCA, from top to bottom. It’s about establishing trust and encouraging responsible innovation. How do you promote a culture of compliance when the companies themselves are perpetually rewarded and given the motivation to avoid following the rules themselves?

Let's make an unexpected connection here. Remember the 2008 financial crisis? Deregulation and the failure to coordinate globally had a decisive hand. Must we be condemned to make the same mistake with crypto?

Global Rules: The Only Way Forward

The solution? Global coordination. It’s not easy, I know. Getting disparate nations to come together on a single point these days seems like an impossible task akin to herding cats. For crypto, this isn’t just desirable — it’s critical. What does this look like in practice?

  • International Collaboration: The International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) need to step up their efforts to develop a harmonized global framework.
  • Information Sharing: Countries need to share information about crypto firms and their activities to prevent regulatory arbitrage.
  • Enforcement Cooperation: Cross-border cooperation is crucial to effectively enforce regulations and prosecute bad actors.

Without such regulation, the fear increases that US stablecoins would inadvertently help to establish the dollar as Europe’s payment method of choice. Well, that outlandish dystopian scenario is quickly becoming a very real possibility. The European Central Bank’s Mario Draghi is correct to be concerned. A disjointed regulatory environment would provide the US a large and lasting competitive edge. Such a scenario would severely threaten the sovereignty of other nations’ financial systems.

Look, I am not anti-regulation. And as many have already reiterated, right-size regulation is a good thing. It protects against bad actors, ensures support for good actors, and encourages innovation. Regulation alone is the equivalent of treating just the symptom and ignoring the underlying disease. We need a global cure.

Here's the truth: the influence of digital assets will continue to grow. Trillions of dollars are at stake. Are we really going to leave the global crypto landscape to its own devices to devolve into a chaos of different regulations? Or will we let this chance pass and continue down a path that breeds more instability, insecurity, and inequity? While the US GENIUS Act would be a good thing domestically, it would actually be a bad thing – a major misstep – worldwide. More than ever, we need strong global rules. The clock is ticking.