America Falls Short in Digital Asset Capitalism

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The US is losing its lead as a hub for digital asset innovation – one of the fastest-growing tech and economic sectors and the basis for the next-generation internet of value – defined by user ownership and exchange.

And yet the White House itself recognized digital assets as having great potential to “transform industries and business models” in its Economic Report of the President released in March 2023.

This then begs the question of why the regulatory moves in the US have culminated in what has been termed, ‘Operation Chokepoint 2.0’ – a concentrated effort to stifle cryptocurrency-based development in the country – with exhibit A as the recent actions taken by the SEC against Binance and Coinbase.

Ultimately, the United States is failing to stand behind its own values of entrepreneurship and free market capitalism or play an active role in regulatory clarity.

This approach creates uncertainty and hinders innovation, as entrepreneurs may be hesitant to invest in new technologies or products without clear rules of the road.

The greatest innovations emerged from free market economies

Air travel, automobiles and the internet are all transformative innovations that originated in the United States because a free market economy created space for experimentation that gave great but potentially risky ideas a chance.

Government intervention in the marketplace can stifle innovation and progress, but regulations are necessary to ensure safety and protect consumers.

A balanced approach is needed to avoid unnecessary burdens on businesses and allow for innovation to thrive.

The air travel we know and love today is a combination of entrepreneurial innovation and regulatory clarity that acknowledged a paradigm shift in travel and created new guide rails for safety, growth and adoption.

Unfortunately, this is not the approach the US Congress and regulatory agencies are taking when it comes to the digital asset economy, which is still incredibly nascent.

And if the current trajectory continues, it’s very likely that digital asset businesses and talent will leave America’s shores for more friendly pastures. But it’s not too late for the US to change course.

By providing clear guidelines and fostering a culture of innovation and entrepreneurship, the US can once again be the global leader in a seismic paradigm shift.

Free market capitalism is often characterized as enabling and fostering competition, profit motive, property rights and limited government intervention.

These components are interrelated in the sense that for the best ideas to win, there needs to be a variety of ideas (competition) that are not hindered by intervention from external authorities.

And individuals and businesses need to be able to reap the rewards of their inventions (property rights) – otherwise, there is no incentive for creativity in the first place.

The digital asset ecosystem is global and decentralized, paving the way for exponentially more competition across industries.

If the US fails to provide regulatory clarity on digital assets, the losers will not just include US citizens and businesses but also the US economy, which will shed jobs and tax income to other nations.

Fallout from ‘Operation Chokepoint 2.0’

The US has already begun to see digital asset businesses moving offshore, but the migration could intensify should the US fail to clarify guard rails for the technology underpinning the next-generation Internet of Value.

A16z’s 2023 State of Crypto Report shows that the percentage of crypto developers based in the US has dwindled every year since 2018 – a statistic that is worth paying attention to given the propensity for developers to become founders.

Additionally, larger companies like Coinbase and Circle have recently made moves to enhance their presence outside of US borders, with Coinbase launching an international crypto derivatives exchange and Circle opening a Paris office.

It doesn’t mean that the US should eliminate rules – just that the rules should be upgraded to allow for the type of experimentation and innovation that gave us air travel and the internet.

What more does the US have to lose

Beyond the tax money currently rolling into IRS coffers from registered digital asset businesses and taxpayers, the United States will lose out on innovation that has the potential to transform our financial system, the internet and beyond for the better.

It’s difficult to accurately capture what that loss would entail since we can’t conceive of the applications that will have the greatest impact from where we stand now.

This is why a free market economy is key to allowing new ideas to flourish.

Blockchains remove rent-seeking middlemen and increase transparency, which could be perceived as a threat to the current economy that is backed in large part by Big Tech and big banks.

A new era is here – although few can comprehend the incumbent paradigm is perishable, this has happened before.

The only question for the future is do we lead, follow or get left behind?

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James Glasscock is the head of ecosystem at Reserve, a protocol and application that helps people fight inflation with stable currencies. James is a 20-year veteran of tech investing, starting at KPMG and Zone Ventures. He also led digital strategy and operations for media companies Turner Broadcasting, Machinima and Warner Bros.

 

Featured Image: Shutterstock/Sergey Nivens/Alexxxey

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