Regulatory Crossroads: The US, Europe, and the Future of Crypto Assets

Written by: TradFiHater

Compiled by: AididiaoJP, Foresight News

When Bitcoin’s inventor, Satoshi Nakamoto, released a white paper, mining was so simple: any gamer with an average home computer could accumulate tens of millions of dollars worth of wealth in the future.

On a home computer, you could have built a huge legacy of wealth that would save future generations from toil, as Bitcoin’s potential return is as high as 250,000 times.

But at the time, most gamers were addicted to Halo 3 on Xbox, and only a few young people used home computers to make a fortune far beyond modern tech giants. Napoleon built legends by conquering Egypt and Europe, and all you have to do is click “Start Mining”.

In 15 years, Bitcoin has become a global asset, and its mining has evolved into a large-scale industry that requires billions of dollars in funding, specialized hardware, and huge energy consumption. Today, the average mining of each bitcoin consumes 900,000 kWh.

Bitcoin has given rise to a new paradigm that stands in stark contrast to the familiar world of finance, governed by traditional institutions. It may be the first real rebellion against the elite since the failure of the Occupy Wall Street movement. It is worth noting that Bitcoin was born precisely after the “Great Financial Crisis” of the Obama era, which largely stemmed from the connivance of high-risk “casino-style” banking. The Sarbanes-Oxley Act, introduced in 2002, was intended to prevent a repeat of the dot-com bubble, and ironically, the 2008 financial collapse was far worse than the former.

Whoever Satoshi Nakamoto was, his invention came at just the right moment, a spasmodic but thoughtful rebellion against the powerful and ubiquitous traditional financial system.

From disorder to regulation: the cycle of history

Before 1933, the U.S. stock market was largely unregulated, relying only on the scattered “blue sky law” regulations of various states, resulting in serious information asymmetry and the proliferation of false transactions.

The liquidity crisis of 1929 became a “stress test” that crushed this model, proving that decentralized self-regulation could not contain systemic risk. The U.S. government carried out a “mandatory reset” through the Securities Acts of 1933 and 1934: replacing the “buyer’s responsibility” principle with a central law enforcement agency (SEC) and a mandatory disclosure system, establishing uniform legal standards for all public assets to restore market trust in the system’s solvency. In the decentralized finance space, we are witnessing exactly the same process unfolding.

Until recently, cryptocurrencies operated as permissionless “shadow banking” assets, functionally similar to the pre-1933 US stock market, but much more dangerous due to the complete lack of regulation. Its governance mainly relies on code and hype, failing to fully assess the significant risks this “beast” may pose. A series of thunderstorms in 2022 have become a “1929-style stress test” in the crypto world, indicating that decentralization does not equal unlimited income and a stable currency. Instead, it creates a risk node that can engulf multiple asset classes.

We are witnessing a forced shift in the zeitgeist: the crypto world is moving from a liberal, casino-like paradigm to a compliant asset class. Regulators are trying to make a “U-turn” of cryptocurrencies: as long as it is legalized, funds, institutions, plutocrats and the state can hoard it like any other asset, thereby taxing it.

This article aims to dissect the origins of the “institutionalized rebirth” of cryptocurrencies, a shift that is inevitable. Our goal is to deduce the logical end of this trend and try to paint a picture of the final shape of the DeFi ecosystem.

Supervision landing: step by step

Before DeFi entered its first true “dark age” in 2021, its early development was not dominated by new legislation, but by federal agencies extending existing laws to cover digital assets.

The first major federal action occurred in 2013: the U.S. Financial Crimes Enforcement Network classified cryptocurrency “exchanges” and “managers” as money services businesses, making them subject to the Bank Secrecy Act and anti-money laundering regulations. 2013 can be seen as the year DeFi was first “recognized” by Wall Street, and it also paved the way for future regulation and suppression.

In 2014, the IRS defined virtual currencies as “property” rather than “money” (for federal tax purposes), resulting in the potential for capital gains tax on every transaction. At this point, Bitcoin has been legally characterized, which also means that it has become taxable, which is far from its original “rebellious” intention!

At the state level, New York State introduced the controversial BitLicense in 2015, the first regulatory framework requiring disclosure from cryptocurrency businesses. In the end, the SEC closed the carnival with a “DAO investigation report”, confirming that many tokens are unregistered securities under the “Howey test”.

In 2020, the Office of the Comptroller of the Currency briefly allowed national banks to provide custody services for cryptocurrencies, but this move was later questioned by the Biden administration as almost a “routine operation” for successive presidents.

The Shackles of the Old World: The Path of Europe

In the “old world” across the ocean, old customs also dominate the development of cryptocurrencies. Influenced by the rigid Roman law tradition (very different from the Anglo-American common law system), an anti-individual liberty atmosphere prevailed, limiting the possibilities of DeFi in a regressive civilization. It must be remembered that the American spirit is heavily influenced by Protestant ethics, and this spirit of autonomy has shaped America’s entrepreneurial culture, ideas of freedom, and pioneering spirit.

In Europe, Catholic traditions, Roman law, and feudal remnants combined to give rise to very different cultures. Therefore, it is not surprising that established countries such as France, Great Britain and Germany have taken different paths. In a society that prefers submission rather than risk-taking, cryptocurrencies are destined to be severely suppressed.

The early days of crypto in Europe were defined by fragmented bureaucracy rather than a unified vision. The industry achieved its first legal victory in 2015: the European Court of Justice ruled in a case that Bitcoin transactions were exempt from VAT, essentially acknowledging the “monetary” nature of cryptocurrencies.

In the absence of a harmonized EU law, countries regulated their own way until the Markets in Crypto Assets Regulation was introduced. France has established a stringent national framework through the PACTE Act, Germany has introduced a crypto custody licensing system, and Malta and Switzerland have scrambled to attract businesses with lenient and favorable regulations.

In 2020, the Fifth AML Directive ended this chaotic era by mandating strict customer authentication across the EU, essentially eliminating anonymous transactions. The European Commission finally realized that the 27 sets of conflicting rules were unsustainable and proposed MiCA in late 2020, marking the end of the “patch era” and the beginning of the era of harmonized regulation.

The American “vision” model?

The transformation of the U.S. regulatory system is not really systemic reform, but more driven by public opinion leaders. The change of power in 2025 brings a new philosophy: mercantilism overwhelms moralism.

Trump’s launch of his controversial “meme coin” in December 2024 may be a landmark event. It shows that the elite is also willing to “make crypto great again.” Today, several “crypto popes” are leading the way, committed to fighting for greater freedom and space for founders, developers, and retail investors.

Paul Atkins’ helm of the SEC is more like a “regime change” than an ordinary personnel change. His predecessor, Gary Gensler, once viewed the crypto industry with an almost hostile attitude and became a “public enemy” of a generation of crypto practitioners. An Oxford University paper even analyzes the pain caused by Gensler’s policies. Many believe that the development of the DeFi space has been delayed for several years due to its radical stance, and the regulators who are supposed to guide the industry are seriously out of touch with the industry.

Atkins not only stopped many lawsuits, but also apologized for the previous policy. The “crypto project” he promoted is an example of the flexible turn of bureaucracy. The project aims to establish an extremely boring, standardized, and comprehensive disclosure system that allows Wall Street to trade crypto assets like Solana like oil. According to Allen International Law Firm, the core of the program includes:

Establish a clear regulatory framework for crypto asset issuance in the United States.

Ensure freedom of choice between custodians and trading venues.

Encourage market competition and promote the development of “super apps”.

Support on-chain innovation and decentralized finance.

Establish an innovative exemption mechanism to ensure commercial viability.

Perhaps the most critical shift is in the Treasury. Former Treasury Secretary Janet Yellen has viewed stablecoins as a systemic risk. The current Treasury Secretary Scott Bescent, an official with a hedge fund mindset, sees the essence: stablecoin issuers are the “only net new buyers” of U.S. Treasury bonds.

Bescent is well aware of the severity of the U.S. deficit. Against the backdrop of central banks around the world slowing down their purchases of U.S. Treasuries, stablecoin issuers’ insatiable greed for short-term Treasury bonds is a major benefit for the new Treasury Secretary. He believes that USDC, USDT, etc. are not competitors of the US dollar, but their “vanguard officers”, extending the hegemony of the US dollar to countries where fiat currencies have plummeted and people prefer to hold stablecoins.

Another typical example of “idling long” is JPMorgan Chase CEO Jamie Dimon. He once threatened to fire any employee who traded Bitcoin, but now he has made the most profitable “180-degree turn” in financial history. JPMorgan Chase launched a crypto mortgage business in 2025, which was seen as a “white flag raised.” According to The Block:

JPMorgan’s plan to allow institutional clients to use Bitcoin and Ethereum as collateral for loans signals a deeper involvement in the cryptocurrency space.

Bloomberg quoted people familiar with the matter as saying that the plan will be rolled out globally and will rely on a third-party custodian to custody collateral assets.

When Goldman Sachs and BlackRock began to erode JPMorgan’s custody fee income, the “war” was quietly over, and the banks won the war by “not going to war”.

Finally, Senator Cynthia Loomis, who was once regarded as a “lone crypto fighter”, has now become the staunchest supporter of the new collateral system in the United States. Her proposal for a “strategic Bitcoin reserve” has moved from fringe theory in online forums to serious congressional hearings. Her call did not directly drive up the price of Bitcoin, but her efforts were sincere.

The legal landscape in 2025 is composed of two parts: “dust has settled” and “still pending”. The current government is so enthusiastic about cryptocurrencies that top law firms have opened real-time policy tracking services. For example, Latham & Watson’s U.S. Crypto Policy Tracker keeps up with regulators who are working hard to set new regulations for DeFi. However, we are still in the “exploratory phase”.

Currently, two bills dominate the U.S. debate:

GENIUS Act: Passed in July 2025. The bill marks Washington’s final move to regulate stablecoins, the most important crypto asset class after Bitcoin. It mandates that stablecoins must be backed by 1:1 Treasury reserves, transforming stablecoins from systemic risk to geopolitical tools similar to gold or oil. The bill essentially authorizes private issuers like Circle and Tether to become “officially authorized buyers” of U.S. Treasury bonds, achieving a win-win situation.

CLARITY Act: This market structure bill aims to clarify the difference between securities and commodities and resolve the SEC-CFTC jurisdiction dispute, which is still stuck in the House Financial Services Committee. Before the bill was passed, exchanges lived in a comfortable but fragile “gray area”, operating on temporary regulatory guidelines rather than solid statutory law.

At present, the bill has become a political wrestling point between Republicans and Democrats, and seems to be used as a “weapon” by both sides.

In addition, the repeal of Employee Accounting Bulletin No. 121 is of great significance. This accounting rule once required banks to list custodial crypto assets as liabilities on their balance sheets, essentially preventing banks from holding cryptocurrencies. Its abolition is like opening the floodgates, marking that institutional capital can finally enter the crypto market without fear of regulatory retaliation. At the same time, Bitcoin-denominated life insurance products have begun to emerge, and the future seems bright.

Old World: Natural risk aversion

Just as the Church has burned scientists at the stake, today’s European authorities have enacted complex and obscure laws that may simply scare off entrepreneurs. The chasm between the vibrant, rebellious young spirit of America and the rigid, conservative and faltering Europe has never been greater. When Brussels had a chance to break free from its usual rigidity, it chose to rest on its stuff.

MiCA, fully implemented by the end of 2025, is a “masterpiece” of bureaucratic intentions and a “disaster” of innovation.

MiCA is advertised as a “comprehensive framework”, a term that often means “total torture” in the context of Brussels. It really provides clarity, so clear that it makes you want to run away.

The fundamental flaw of MiCA is the “misclassification”: it regulates crypto founders as sovereign banks. The cost of compliance is high enough to cause most crypto startups to fail.

A memorandum from Norton Roche dissects the statute objectively:

Structurally, MiCA is an “exclusive mechanism”. It imposes a onerous compliance structure comparable to the Markets in Financial Instruments Directive II on crypto asset service providers, which was meant to regulate financial giants.

Under its Titles III and IV, the regulation imposes strict 1:1 liquidity reserve requirements on stablecoin issuers, effectively banning algorithmic stablecoins through legal means (determining them to be “insolvent” from the start). This in itself could lead to new systemic risks - imagine being declared “illegal” by Brussels overnight?

In addition, issuers of “significant” tokens will face increased regulation by the European Banking Authority, including capital requirements that are prohibitive for startups. Today, it is almost impossible to open a crypto business in Europe without a team of top lawyers and capital comparable to traditional financial giants.

For intermediaries, Part 5 completely denies the offshore and cloud exchange models. Service providers must set up physical offices in EU member states, appoint resident directors who have passed the “fit and proper test”, and implement strict segregated asset custody. The “white paper” calls for technical documentation to be turned into a legally binding prospectus, and any material inaccuracies or omissions will result in strict civil liability, completely breaking the “corporate veil” of anonymity cherished by the industry. Instead of that, it is better to open a digital bank directly.

Although MiCA introduces a “right of way” that allows service providers approved in one member state to operate throughout the EEA, this “harmonization” is costly.

It has built a regulatory “moat” that only extremely well-capitalized institutional players can afford the huge costs of AML integration, market abuse monitoring, and prudential reporting.

MiCA not only regulates the European crypto market, but also essentially prevents entrepreneurs who lack legal and financial resources from entering, which is precisely the current situation for most crypto founders.

On top of EU law, German regulator BaFin has been reduced to a mediocre “compliance paperworker” whose efficiency is only reflected in formalities for an increasingly declining industry. France’s ambition to become Europe’s “Web3 hub” has hit a wall built by itself. French startups are not writing code, but “voting with their feet”. They cannot compete with the speed of the United States or the innovation of Asia, leading to a massive flow of talent to Dubai, Thailand and Zurich.

But the real “death knell” is the stablecoin ban. The EU has essentially banned non-euro stablecoins such as USDT on the grounds of “protecting monetary sovereignty”, which is equivalent to killing the most reliable areas in the DeFi ecosystem. The global crypto economy relies on stablecoins to function. Forcing European traders to use illiquid “euro stablecoins” that are not cared for outside the euro area is tantamount to digging a “liquidity trap” for itself.

The European Central Bank and the European Systemic Risks Committee have urged the EU to ban the “multiple issuance” model (i.e., global stablecoin companies treat tokens issued inside and outside the EU as interchangeable). The ESRB, led by ECB President Christine Lagarde, warned that non-EU holders running on EU-issued tokens could “amplify financial risks within the EU.”

At the same time, the UK is considering setting a cap of £20,000 on individual stablecoins, but there is a lack of regulation on riskier “shitcoins”. This risk-averse strategy in Europe urgently needs to be overhauled, or regulation itself could trigger a systemic collapse.

The reason may be simple: Europe wants its citizens to remain bound by the euro and unable to participate in the US economy to escape its own stagnation or even recession. As quoted by Reuters, the ECB warns:

Stablecoins could siphon valuable retail deposits from Eurozone banks, and any run on stablecoins could have widespread implications for global financial stability.

Ideal model: the Swiss model

Some countries, free from the shackles of partisan struggles, foolish decision-making and outdated laws, have successfully avoided the binary dilemma of “overregulation” and “insufficient regulation” and found a way to be inclusive of all parties. Switzerland is such a model.

Its regulatory landscape is diverse, effective, and friendly, making it a favorite among practitioners and users alike:

Financial Market Supervision Act: Enacted in 2007, integrating banking, insurance, and anti-money laundering regulators to create an independent and unified Swiss Financial Market Supervisory Authority.

Financial Services Law: Focus on investor protection and create a level playing field for all types of financial service providers through strict codes of conduct, customer classification and information disclosure.

Anti-Money Laundering Law: A core framework for combating financial crime, applicable to all financial intermediaries (including crypto service providers).

Distributed Ledger Technology Act: Passed in 2021, amending ten federal laws to formally recognize the legal status of crypto assets.

Virtual Asset Service Provider Regulations: Strictly enforce FATF rules with a “zero tolerance” attitude.

Article 305 bis of the Swiss Penal Code: Making money laundering a criminal offence.

Industry standard: Published by the Capital Markets and Technology Association, it is not mandatory but widely adopted.

Regulatory system: Parliamentary legislation, FINMA issuance rules, daily supervision of self-regulatory organizations, and the Money Laundering Reporting Office reviewing suspicious reports and transferring them for prosecution, with a clear structure and clear powers and responsibilities.

As a result, the Zug Valley has become a “mecca” for crypto entrepreneurs. Its logical framework not only allows for innovation but also provides a clear legal umbrella, providing peace of mind for both users and banks willing to take on manageable risks.

America embraces and exploits

New World’s acceptance of cryptocurrencies is not purely driven by a desire for innovation (France has not yet been able to send people to the moon), but more of a pragmatic choice under financial pressure. Since ceding the dominance of the Web2 Internet to Silicon Valley in the 80s, Europe seems to see Web3 as another “tax base” to be harvested, rather than an industry to be cultivated.

This repression is structural and cultural. Against the backdrop of an aging population and an overwhelmed pension system, the EU cannot tolerate the rise of a competitive financial industry that is not under its control. This is reminiscent of feudal lords imprisoning or killing local nobles to eliminate potential threats. Europe has a pathetic “self-destructive tendency” to prevent uncontrolled change at the expense of the potential of its citizens. This is strange in the United States, where American culture advocates competition, enterprising and a Faustian will to power.

MiCA is not a “developmental” framework, but a “death sentence”. It aims to ensure that if European citizens make crypto transactions, they must be done within the national surveillance grid to guarantee that the government “gets a piece of the pie”, like a fat monarch trying to squeeze out farmers. Europe is positioning itself as the world’s “luxury consumer colony” and “eternal museum” for wow Americans to come to pay homage to an irreversible past.

Switzerland, the United Arab Emirates and other countries have jumped out of historical and structural flaws. They do not have the imperial baggage of defending the global reserve currency, nor the bureaucratic inertia of the G27. Outputting “trust” through the Distributed Ledger Technology Act and others, they attract foundations with core intellectual property rights such as Ethereum, Solana, Cardano, etc. The UAE is not far behind, and it’s no wonder that more and more French are “invading” Dubai.

We are heading towards a period of “aggressive jurisdictional arbitrage”.

The crypto industry will be geographically fragmented: the consumer side will remain in the US and Europe, subject to full identity verification, high taxes, and integration with traditional banks; The core agreement layer will be moved to rational jurisdictions such as Switzerland, Singapore, and the United Arab Emirates.

Users will be all over the world, but founders, VCs, protocols, and developers will have to consider leaving their home market to find a better place to build.

The fate of Europe may be reduced to a “financial museum”. It is creating a glamorous but useless legal system for citizens, even fatal to actual users. I can’t help but ask: technocrats in Brussels, have you ever bought Bitcoin or transferred stablecoins across chains?

Cryptocurrencies becoming a macro asset are inevitable, and the United States will maintain its position as a global financial center. With Bitcoin-denominated insurance, crypto asset collateral, crypto reserves, unlimited venture capital support, and a vibrant developer ecosystem, the United States is building the future.

Worrying conclusion

All in all, the “brave new world” that Brussels is building is not like a coherent digital framework, but more like an awkward patchwork trying to graft 20th-century banking compliance clauses into 21st-century decentralized protocols, and its designers are mostly engineers who know nothing about the ECB’s temper.

We must actively advocate for an alternative system that prioritizes real needs over administrative control. Otherwise we will completely kill Europe’s already anemic economy.

Unfortunately, cryptocurrencies are not the only victims of this “risk paranoia”. It is just the latest target of a well-paid, complacent bureaucracy. This group of people roams the lifeless postmodern corridors of the capital, and their heavy hand supervision exposes their lack of practical experience. They have never experienced the tediousness of account verification, the rush to apply for a new passport, and the hardships of applying for a business license. So while Brussels is full of so-called “technocrats,” crypto-native founders and users have to deal with a group of people who are deeply incompetent and only create harmful legislation.

Europe must turn and act now

While the EU is busy restraining itself with red tape, the United States is actively planning how to “normalize” DeFi and move towards a framework that benefits many parties. A certain degree of “recentralization” through regulation is inevitable, and the collapse of FTX has already written warnings on the wall.

Investors who have lost a lot of money crave justice; We need to break free from the current “Wild West” cycle of meme coin sprees, cross-chain bridge loopholes, and regulatory chaos. We need a structure that allows traditional capital (Sequoia, Bain, BlackRock, Citi, etc. have already taken the lead) to enter securely while protecting end users from predatory capital.

Rome was not built in a day, but after 15 years of cryptographic experimentation, the institutional foundation is still mired in the quagmire. The window period for building a functional crypto industry is rapidly closing; All will be lost in the war of hesitation and compromise, and swift, decisive and comprehensive regulation will be needed on both sides of the Atlantic.

If this cycle is really coming to an end, now is the perfect time to save the industry’s reputation and compensate serious investors who have been hurt by bad actors for years.

Those tired traders from 2017, 2021, and 2025 are demanding a complete liquidation and finding a final answer to the cryptocurrency problem. And most importantly, let our world’s favorite assets usher in the new historical high they deserve.