The Great Crypto Divide: How Global Regulation is Fragmenting the ‘Borderless’ Dream

Coinbase has secured a license from Luxembourg to offer crypto services across the European Union and will make Luxembourg its central hub in the region, obtaining its Markets in Crypto Assets (MiCA) license from Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF). The announcement, made Friday, represents far more than a regulatory milestone for the American crypto giant, as it may signal the beginning of crypto’s transformation from a borderless, permissionless technology into a fragmented global landscape that essentially mirrors traditional banking.

It makes Coinbase the first U.S. crypto exchange to receive a MiCA license, highlighting how even the world’s largest crypto platforms must now navigate an increasingly complex patchwork of regional regulations. This development comes as emerging regulatory frameworks worldwide are creating divergent paths for crypto adoption, with implications that extend far beyond compliance costs.

The Borderless Dream Deferred

What emerges from this regulatory evolution is a troubling picture for crypto’s original vision. Rather than creating a truly global, permissionless financial system, the industry appears to be replicating the geographical and institutional barriers that characterize traditional finance. Crypto bag holders have long cried out for ETFs and regulatory clarity, primarily to attract ‘institutional’ capital to crypto markets and boost the value of their holdings as a result. But the irony is palpable: in seeking legitimacy through regulation, crypto may be surrendering the very characteristics that made it revolutionary.

Instead of a global financial revolution, crypto is becoming just another battleground for market dominance. “We’re falling behind Europe,” said Republican Rep. Patrick McHenry of North Carolina during the House debate on FIT21. “This bill catches [us] up so that we do not lose out on innovation policy to the Europeans, to the folks in the UK, to Singapore, to Japan, to Hong Kong”. This framing reveals how crypto policy is increasingly viewed through the lens of national competition rather than global innovation.

The question facing the crypto industry is whether this regulatory fragmentation is an inevitable maturation process or a fundamental betrayal of crypto’s foundational principles. The license allows Coinbase to serve approximately 450 million Europeans under a unified regulatory framework, which represents scale and efficiency yes, but it also represents the institutionalization of geographical boundaries into a technology designed to transcend them.

As major crypto companies adapt to this new reality, smaller innovators will find themselves unable to navigate the compliance requirements necessary to operate globally. The result will likely be a crypto ecosystem that, while more regulated and “respectable,” bears little resemblance to the decentralized, permissionless vision that originally inspired the technology.

The European Opening vs. American Gatekeeping

While crypto was born with the promise of being truly global and permissionless, regulatory realities are creating distinct regional approaches. Europe’s MiCA framework, which covers crypto-assets that are not currently regulated by existing financial services legislation and provides passporting rights, meaning that, if a crypto asset service provider is authorised in one EU state, it can operate across all member nations, represents a more inclusive approach to global participation.

In contrast, pending U.S. legislation appears increasingly focused on protecting American interests. The Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the House of Representatives with a 279-136 vote that saw Democrats crossing party lines to support it, aims to clarify regulatory jurisdiction between U.S. agencies but raises questions about its approach to international players.

The Trump Factor: America First Meets Crypto

The Trump administration’s approach to crypto regulation appears explicitly designed to benefit American companies and interests. President Trump signed an executive order that sets forth the administration’s policy “to support the responsible growth and use of digital assets, blockchain technology, and related technologies across all sectors of the economy,”  but so far the focus and legislation remains distinctly domestic.

President Trump promised to make the United States the “crypto capital of the world,” emphasizing the need to embrace digital assets to drive economic growth and technological leadership. However, this vision appears rooted in American dominance rather than global collaboration. The administration has moved quickly to establish a Strategic Bitcoin Reserve that will treat bitcoin as a reserve asset, positioning the U.S. government as a major market participant with obvious conflicts of interest.

Faryar Shirzad, Coinbase’s chief policy officer, said the administration has already met two core expectations: ending the regulatory crackdown on crypto and working with Congress to deliver clarity – clarity albeit designed primarily for domestic benefit.

The Banking Parallel: When Innovation Meets Compliance

The crypto industry’s evolution toward regulatory compliance bears striking similarities to how global banking developed into its current oligopolistic structure. Just as international banks must maintain massive compliance departments to navigate different jurisdictions, crypto companies are discovering that regulatory complexity favors large, well-capitalized firms over innovative startups. Small players will have to partner with the majors to get any traction – and will be absorbed as a result.

MiCA regulations have resulted in the delisting of non-compliant stablecoins. Crypto exchanges like Kraken and Crypto.com have recently removed support for Tether’s USDT, clearly demonstrating how regulatory requirements force platforms to choose between compliance and innovation.

The DeFi Innovation Squeeze

Perhaps nowhere is the regulatory divide more apparent than in decentralized finance (DeFi).  MiCA’s main focus is on centralized exchanges. This leaves a hole for decentralized finance (DeFi).  This regulatory gap creates an uncomfortable reality: the most innovative aspects of crypto, permissionless protocols that can theoretically serve anyone globally, remain largely unaddressed by major regulatory frameworks. Meanwhile, traditional crypto exchanges face increasing compliance burdens that favor incumbents.

Global Fragmentation Accelerates

The contrast between regulatory approaches is becoming more pronounced. Laurenth Alba, head of business development at Rome Protocol and legal consultant, told Cryptonews that MiCA is a regulatory benchmark, but it won’t automatically become a global standard. “MiCA’s clear framework for stablecoins, exchanges, and compliance provides much-needed clarity, something jurisdictions like the US still lack”

Alba pointed out that the US relies on enforcement-first tactics, while Asia-Pacific (APAC) markets lean toward sandbox models, highlighting how different regions are developing fundamentally different philosophies toward crypto regulation.

The practical implications are already visible. Previously, Coinbase held separate licenses in Germany, France, Ireland, Italy, The Netherlands, and Spain, but now must consolidate under MiCA. This represents efficiency for European operations but underscores how regulatory requirements are forcing geographical boundaries onto previously borderless services.