How U.S. Regulators Could Race To The Bottom For Crypto

Since September 30, 2019, two major blockchain networks received major announcements from U.S. regulators. On September 30, 2019, a company called Block.one paid a $24 million fine to the SEC for an unregistered securities offering. In return, the EOS cryptocurrency, a native token of the EOSIO blockchain network, can be used publicly without risk of any securities law violations. The Initial Coin Offering for EOSIO raised a reported $4 billion. Soon thereafter, on October 10, 2019, the CFTC declared Ethereum was a commodity, solidifying certainty that it was not a security. 

  

 

What is more interesting is that EOS opened an office in Arlington, Virginia, right next to Washington D.C., with numerous politicians including the Virginia Governor at the opening of the office and with Block.one indicating the potential of up to 200 blockchain jobs. As I reported earlier this week, Ripple just opened up a major political and regulatory affairs office in D.C. as well.

The opening of the Block.one office shortly before the SEC settlement (8 days prior) and the appearance of the General Counsel of Block.one speaking at the CFTC’s Technical Advisory Committee the day after the settlement, hints at the concept of a “race to the bottom”. 

     A race to the bottom indicates that regulators - or countries - attempt to lower the threshold on regulations to attract businesses to its jurisdiction. For example, the Libra Association established itself in Switzerland rather than the United States, perhaps as a result of the Swiss law for nonprofits that makes it easier and less likely to face stringent regulation. In fact, many in Congress asked Libra why not or to please consider re-establishing itself in the U.S.

For U.S. regulators, a race to the bottom will occur when an agency may lower its standards in some ways to attract more businesses to be under its purview. While this may seem counterintuitive, the many regulators in the U.S. do have a healthy sense of competition between each other and can equal measures of power and influence in D.C. Indeed, regulators facing a lower amount of entities to regulate translates to budget and job cuts for the regulators of that agency.