The Crypto Clarity Crisis

Last year started with such promise.

In March 2022, President Biden issued an executive order that coordinated agencies within the Executive Branch to take a long, hard look at the U.S. digital asset ecosystem: the good and the bad, the opportunities and the pitfalls.

Those of us who advocate for a comprehensive, whole-of-government U.S. strategy on crypto were cautiously optimistic, for a few reasons.

First, we hoped the White House’s focus would result in regulatory clarity; specifically, rules that would promote the growth of digital assets in the U.S. while providing important benefits like consumer protection, crime prevention, robust disclosures, and financial inclusion.

(Contrary to a lot of commentary, most crypto founders want regulatory clarity, so they can build without the specter of uncertain rules lurking in the shadows.)

Second, we hoped that the government would gain a better understanding of what crypto can power: proveable digital ownership, near-costless and instantaneous value transfer across the internet, and greater control over one’s finances and private information, all without the need to interact with (and pay) centralized intermediaries such as banks or big tech companies.

Unfortunately, the last year in crypto has not lived up to these hopes. To be sure, some of that is the result of self-inflicted wounds: the frauds, hacks, and failures of last year – including FTX, Terra, Celsius, BlockFi, and others – that have made it hard to separate the social good the technology provides from the hucksters that sully its name. D.C. policymakers have been stung, and its regulatory agencies want to make sure the next failure doesn’t happen on their watch.

But even in the face of these industry fiascos, the government’s approach has been one-sided. The agency that has taken the lead in regulating digital assets, the Securities and Exchange Commission, has yet to propose rules that would allow crypto projects to comply with the securities laws (as one of its commissioners proposed), and instead has brought actions against some of the most compliant projects in the space, including Coinbase — a company the SEC allowed to go public less than two years ago.

What does this mean for crypto founders, builders, and investors?

My perspective is that it’s in the strategic national interest of the U.S. to have these technologies created here, so we can have a say in how they are built and regulated.

If we are right about the potential of this technology, an anti-crypto position by the U.S. government would be akin to handing Europe or Asia the keys to building the Internet thirty years ago. To boot, the vacuum created by U.S. regulatory uncertainty is likely to be occupied by countries that may not share our commitment to privacy and free speech.

As an optimist, I’m compelled to keep working on behalf of founders and the industry to have digital assets thrive in the U.S. I believe that, in time, the U.S. will get it right.

But in the meantime, our country is losing the initiative. Our dominance in crypto developer talent is waning. Digital asset companies are being founded elsewhere. Projects are restricting American users from accessing them. And other jurisdictions – most notably the European Union, United Kingdom, and Singapore – are building frameworks that lean into the advantages of the technology and provide a clear regulatory roadmap, to attract these projects.

At True, one thing we’ve found is that the building itself hasn’t stopped. The number of high quality founders with potentially groundbreaking technology has not diminished. This is a reason for hope and excitement. We will keep supporting them through our crypto community conversations where founders discuss current regulatory issues with superstar guest speakers, our continued advocacy efforts in D.C., and by providing whatever wisdom we can as the regulatory environment becomes – in time – more clear.

This article, by our partner Gus Coldebella, was first published in the True Ventures newsletter. Subscribe here for monthly insights from True or check out Gus’s Substack.