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The Curious Case Of Web3 Politics (Pt. 3)

Old videos from a past life. Live-streamed U.S. Congress hearings. Historic parliamentary sessions. The political atmosphere surrounding crypto has never felt more electric! Let's unpack the latest.

The last few months have been a rollercoaster of seminal events in Web3's political history. Countries across the world have ramped up activity on crypto regulation. The race for Web3 supremacy is officially on!

Last month, we talked about why political decentralization of the blockchain is necessary. We also compared the strategies of different countries in light of macroeconomic factors.

This week, we’ll be discussing the significance of the recent news. What does it mean for degens crypto holders? What about bad actors? Oh, and mass adoption—how will it affect our journey to the Promised Land?

It’s no news that Gary Gensler is the torchbearer for the U.S. government’s anti-crypto crusade. Since last year, he’s dreamed of a world where crypto tokens are classified unequivocally as securities.

If this ever happened, crypto would fall directly within the regulatory purview of the SEC, of which he is the Chair. Here’s a quick summary of the intellectual gymnastics that Gary has tried to use to further his cause:

Now, this topic isn’t all about Gensler. But for someone who’s at the center of this controversy, why don’t we take a closer look at his background?

So, there you have it. The poster child for anti-crypto legislation in the U.S. is not exactly the most reputable voice in the room. And I’m not the only one who feels this way, either.

Gary Gensler has faced intense backlash in the aftermath of the SEC’s lawsuit against Coinbase. U.S. lawmakers have run out of patience with his antics and posturing. A bill has been introduced to fire Gensler and reform the office that he currently occupies.

While the SEC Chairman was getting served a cold breakfast of reality checks, more historic events were underway in Europe. After years of preparation, redrafting, and several delays, the EU Parliament finally adopted the MiCA law.

For the first time in history, a uniform regulation on Web3 finance exists for 27 countries in Europe. The Markets in Crypto Assets Law provides more certainty on how the EU legal system will integrate blockchain-based financial products.

The new law also penalizes certain activities that could potentially create hardship for crypto users. It’s noteworthy that MiCA emphasizes due process and transparency while providing safety nets for victims of unfortunate circumstances.

In the absence of consequences, crime does not exist.

How is this different from the U.S. regulatory approach?

We could talk about perceived political agendas to control cryptocurrency by manipulating the law. That would be a waste of time, in my opinion. Practical observation adds more value to this conversation.

While U.S. regulators seek to enforce laws that are vague, the EU has laid a solid foundation for any future enforcement. One system follows common sense, while the other throws all caution to the wind.

In the absence of consequences, crime does not exist. Bad actors are well aware of this. The greed and ignorance of crypto users and a gaping hole in the legal system have created a perfect playground for scammers to steal approximately $3 billion every year.

GM ☕️

On today's episode of "why we need crypto regulation."

— Big Backend Bandit 🥷🏾 (@web3bandit)

Apr 25, 2023

Let’s face facts, though: crypto regulation will not eliminate scams. But with proper execution, it creates a more predictable environment for enterprises to thrive. Laws open the door to wider adoption because, guess what? People like to feel safe.

MiCA, in its current form, is not a perfect body of law. But it is a great starting point for future regulation in Europe and a great reference point for other jurisdictions across the globe.

As courts begin to entertain litigation on questions rooted in the text of MiCA, the law will expand to cover a vast number of scenarios. This is a truly exciting prospect. We are witnessing events that will reverberate down the halls of history.

Let’s frame this discourse in an even wider context. Coinbase published a response to the SEC’s “Well’s Notice” (a Well's Notice is typically followed by a lawsuit). The crypto community has broadly endorsed the views expressed by Brian Armstrong and Paul Grewal.

The Web3 industry behemoth has also been very vocal about its resolve to fight back against the SEC’s unprofessional conduct. Five days ago, this was actualized in a lawsuit by Coinbase against the SEC.

Kraken, a major crypto exchange, has also filed a lawsuit against the IRS. This is an effort to protect the identities of its 9 million+ registered users, to which the IRS is seeking access. The court ruling in this case would be significant in determining the extent of data privacy rights in Web3.

Meanwhile, on Capitol Hill, Senator Elizabeth Warren is scrambling to muster up support for a bill that could impose a de facto ban on crypto in the U.S. The elephant in the room continues to grow bigger as the global economic influence of the U.S. continues to wane.

First Republic Bank, another major U.S. bank, is in hot water amidst rumors of a government takeover. This comes barely a month after the collapse of Silicon Valley Bank and Silvergate Bank. The handwriting on the wall is clear: global economic reliance on the U.S. dollar is at an all-time low.

An emerging conglomerate is seizing this chance to gain prominence on the world stage. BRICS is an alliance comprising Brazil, Russia, India, China, and South Africa. Together, they account for 31.5% of the global GDP, which is greater than the G7’s contribution of 30.7%.

The BRICS-funded New Development Bank now offers 30% of all loans in the local currencies of its member nations rather than U.S. dollars. Brazil’s president has publicly pushed for the creation of a new trading currency for BRICS countries.

China and France recently completed the first ever liquefied natural gas trade using the Chinese Yuan instead of U.S. dollars. Saudi Arabia also joined a trade pact with eight other nations to reduce its reliance on the U.S. dollar. Ahead of its next summit in South Africa, the BRICS alliance has received 13 formal applications from prospective new member countries.

Circling back to crypto regulation, a Hong Kong court has recognized cryptocurrencies as property in a landmark case. Japan recently approved a white paper on its vision for blockchain technology, crypto assets, and organizations.

No doubt, we’re witnessing a race between the global economic powers to harness the power of blockchain technology. The last time we saw anything on this scale was in the 1950s, at the start of the nuclear arms race. That era birthed new world powers.

Some countries are approaching it methodically by laying a good foundation to sustain Web3 industries in the long term. Others focus on extracting liquidity from ecosystems that were built to function independently of established institutions. I’d rather bet on long-term players. What about you?

Who will win the race to become the global power in Web3?

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.

Last week, the EU passed a historic legislation on crypto.

The Markets In Crypto Assets law is the first uniform regulation for Web3 finance across 27 countries.

What could the future look like? 🧵

— Big Backend Bandit 🥷🏾 (@web3bandit)

Apr 28, 2023

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