The U.S. Is Losing Its Edge in Crypto, Says Andreessen Horowitz

As the regulatory climate surrounding crypto continues to heat up in the U.S., a report released by a16z on Tuesday linked a steady stream of enforcement actions and court cases to a decline in America’s leadership in the digital assets space.

In an entirely new section in the regular “State of Crypto” report that touches on regulation and policy, the investment arm of Andreessen Horowitz highlighted a decline in several metrics gauging crypto-related activity in the U.S.

While the country was home to nearly 40% of crypto developers in 2018, that ratio has continuously ticked down over the past few years, falling under 30% last year, according to the report.

Additionally, the portion of traffic to crypto-related websites from users based in the U.S. declined for the third year. Last year, just over 15% of traffic to websites like CoinGecko, CoinMarketCap, and Etherescan was comprised of Americans—a notable drop from around 23% in 2019.

These declines are likely influenced by a decline in digital asset prices as well as the fact that Web3 is gaining traction globally. However, the report then delves into a16z’s policy views and makes recommendations as to how regulators should act.

“Banning new business models or technologies undermines American values and drives innovation and jobs elsewhere,” the report states. “Legal businesses and their customers deserve access to financial services and lawful protections, from banking relationships to data privacy.”

The focus on regulation comes amid a crypto crackdown in the U.S., where regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have stepped up their scrutiny of digital asset firms.

Notably, the leading U.S. cryptocurrency exchange Coinbase was hit with a Wells Notice by the SEC over its staking products last month, not long after Kraken was fined $30 million by the financial watchdog—causing it to shutter its staking-as-a-service program entirely. And a CFTC lawsuit for alleged violations of derivatives trading rules looms over Binance, despite CEO Changpeng Zhao’s repeated requests for people to “Ignore FUD, fake news, attacks, etc.”

The report calls for new rules and guidance from government agencies that could help dispel a cloud of regulatory uncertainty in the U.S.—a task to which one Financial Services Subcommittee created this year is devoted.

Legislation that “could provide needed clarity” was spotlighted by the report as well, such as the Responsible Financial Innovation Act, the Digital Commodities Consumer Protection Act, and the Digital Commodities Exchange Act.

Focussing on the courts, the a16z report notes there are multiple cases in the U.S. that will further shape the country’s regulatory landscape this year. They range from CFTC and SEC lawsuits to various bankruptcy cases for collapsed firms like FTX, Voyager, and Celsius.

At the top of its list, a16z features the SEC’s ongoing case against Ripple, a lawsuit the company has been battling since 2020 but may soon come to a close. The SEC’s central claim is that the company raised $1.3 billion in unregistered securities offerings, and its outcome could have a sizable impact on how cryptocurrencies are classified.

The report also cites the situation surrounding Tornado Cash as an impactful court case as well, where the advocacy group Coin Center is currently suing the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC) over its sanctioning of the Ethereum-based coin mixer.

“Businesses should be the focus of regulation, whereas decentralized, autonomous software should not,” the report adds.