The crossroads of US, European, and Canadian crypto regulation: testing ground or museum?

Author: Castle Labs

Compiled by: Yangz, Techub News

When Satoshi Nakamoto released the white paper, mining Bitcoin was very simple; anyone with a mainstream CPU could easily accumulate wealth worth millions of dollars in the future. Instead of playing “The Sims” on your home computer, why not build a substantial family business so that future generations can enjoy high investment returns of approximately 250,000 times without hard labor?

In fifteen years, Bitcoin has evolved into a global asset, relying on large-scale operations supported by billions of dollars in funding, hardware, and energy inputs. The average power consumption per Bitcoin is as high as 900,000 kilowatt-hours.

Bitcoin has spawned a new paradigm, sharply contrasting with the tightly controlled financial world of our upbringing. It may be the first true rebellion against elite classes after the failure of the “Occupy Wall Street” movement. Notably, Bitcoin was born after the major financial crisis of the Obama era—an crisis largely caused by the indulgence of high-risk casino-style banking activities. The 2002 Sarbanes-Oxley Act aimed to prevent a recurrence of internet bubbles; ironically, the 2008 financial crash was much worse.

Who Satoshi Nakamoto is remains unknown, but his invention came at the right time—like a wildfire igniting fiercely yet thoughtfully—a direct attack on that powerful and omnipresent Leviathan.

Before 1933, the US stock market was essentially unregulated, only constrained by scattered state-level “Blue Sky” laws, leading to severe information asymmetry and rampant wash trading.

The liquidity crisis of 1929 became a stress test that proved decentralized self-regulation could not contain systemic risks (sound familiar?). In response, the US government enforced a hard reset through the 1933 and 1934 Securities Acts, replacing the “buyer beware” principle with a central enforcement agency (SEC) and mandatory disclosure mechanisms, unifying all public assets’ legal standards to restore trust in the system’s solvency… We are witnessing the same process replayed in the DeFi space.

Until recently, cryptocurrencies operated as permissionless “shadow banking” assets—similar to the pre-1933 era, but far more dangerous due to complete lack of regulation. This system relies on code and speculation as core governance mechanisms, failing to adequately consider the enormous risks posed by this financial beast. The ongoing wave of bankruptcies in 2022 serves as a stress test akin to 1929, indicating that decentralization does not mean unlimited gains or sound money; instead, it creates risk nodes capable of engulfing multiple asset classes. We are witnessing a shift in the zeitgeist from a libertarian casino paradigm toward a forced, compliant asset class—regulators are attempting to steer crypto toward a U-shaped turnaround: as long as it’s legal, funds, institutions, high-net-worth individuals, and even states can hold it as they do any other asset, enabling taxation.

This article aims to reveal the origin of the systemic rebirth of cryptocurrency—an inevitable transformation. Our goal is to project the inevitable endgame of this trend and precisely define the final form of the DeFi ecosystem.

Regulatory Framework Implementation

Before DeFi truly entered its first dark age in 2021, its early development depended less on new legislation and more on extending existing laws by federal agencies to accommodate digital assets. Indeed, everything had to proceed step by step.

The first major federal action appeared in 2013 when FinCEN issued guidance classifying crypto “exchanges” and “service providers” as money services businesses, effectively subjecting them to the Bank Secrecy Act and anti-money laundering regulations. 2013 can be seen as the year DeFi was first acknowledged by Wall Street, paving the way for law enforcement while also planting the seeds for suppression.

In 2014, the IRS declared virtual currencies as “property” for federal tax purposes, complicating the picture—each transaction triggered capital gains tax obligations; thus, Bitcoin gained legal classification and the ability to be taxed—far from its original intent!

At the state level, New York introduced the controversial BitLicense in 2015, the first regulatory framework requiring crypto companies to disclose information. Ultimately, the SEC concluded this regulatory “party” with the DAO investigation report, confirming many tokens as unregistered securities under the Howey test.

By 2020, the Office of the Comptroller of the Currency briefly opened the door for nationwide banks to offer crypto custody services, but this move was later questioned by the Biden administration—an all-too-familiar pattern with successive presidents.

Across the Atlantic, the old continent is also governed by outdated practices. Influenced by the rigid Roman law (distinct from common law), a similar anti-individual freedom spirit pervades, constraining DeFi potential in a regressive civilization. We must remember that the US is fundamentally a Protestant nation; this autonomous spirit has shaped America—a country defined by entrepreneurialism, freedom, and pioneering mentality.

In Europe, the residual influence of Catholicism, Roman law, and feudal remnants fostered a different culture. It’s no surprise that France, the UK, and Germany took different paths. In a world that values conformity over risk-taking, crypto technology faces severe suppression.

Early European characteristics include dispersed bureaucracies rather than a unified vision. The industry’s first victory came in 2015 when the European Court (Skatteverket v. Hedqvist case) ruled that Bitcoin transactions are exempt from VAT, effectively granting crypto assets a legal status.

Before the EU-wide legislation was enacted, countries varied in crypto regulation. France (with the PACTE law, a poorly designed legal framework) and Germany (with crypto custody licenses) established strict national frameworks, while Malta and Switzerland vied to attract businesses through top-tier regulation.

This chaotic era ended with the implementation of the 2020 Fifth Anti-Money Laundering Directive, requiring strict KYC across the EU, effectively eliminating anonymous transactions. Recognizing that 27 conflicting sets of rules were unsustainable, the European Commission finally proposed the Markets in Crypto-Assets Regulation (MiCA) at the end of 2020, signaling the end of patchwork regulation and the beginning of a unified regime… Much to everyone’s frustration.

America’s Forward-Looking Paradigm

Oh, blockchain—can you see it? As Donald clears the way, the long-held ban now stands legally.

The transformation of the US regulatory system isn’t a true systemic overhaul; it’s mainly driven by opinion leaders. The power shift in 2025 ushers in a new philosophy: mercantilism over moralism.

In December 2024, Trump issued his notorious meme coin, perhaps a climax or not, but it indicates that the elite are willing to make crypto great again. Several crypto pontiffs now steer the course, always striving to give more freedom and space to founders, builders, and retail investors.

Paul Atkins’ appointment as SEC Chair is less a personnel change than a regime shift. His predecessor, Gary Gensler, viewed the crypto industry with pure hostility. He became an irritant for our generation; Oxford even published papers highlighting the pain of Gensler’s rule. Many believe that his radical stance caused DeFi leaders to lose years of development opportunities, hindered by a regulator who was meant to lead the industry but became out of touch.

Atkins not only paused lawsuits but essentially apologized for them. His “Project Crypto” plan exemplifies bureaucratic pivoting. This “plan” aims to establish an extremely dull, standardized, comprehensive disclosure framework, allowing Wall Street to trade Solana just like oil. The law firm WilmerHale summarized the plan as follows:

1. Establish a clear regulatory framework for US crypto issuers
2. Ensure freedom of choice for custodians and trading venues
3. Embrace market competition and promote “super-apps”
4. Support on-chain innovation and DeFi
5. Innovation exemptions and commercial viability

Perhaps the most critical shift will occur at the Treasury Department. Janet Yellen once regarded stablecoins as a systemic risk. Scott Bessent—a bureaucrat with a hedge fund mind—saw their true nature: the US Treasury bond’s only new buyer.

Bessent understands the tricky algorithms of US deficits well. In a world where foreign central banks slow their US debt purchases, the unlimited demand for short-term treasuries from stablecoin issuers is a reassuring boon for the new Treasury Secretary. From his perspective, USDC/USDT are not competitors to the dollar but pioneers—extending dollar hegemony into unstable countries where people prefer holding stablecoins over devaluing fiat currencies.

Another “villain” turned around is Jamie Dimon, who once threatened to fire any trader touching Bitcoin, but now has made the most profitable 180-degree turn in financial history. JPMorgan’s crypto-backed lending launched in 2025 is a white flag. According to The Block, JPM plans to allow institutional clients to use Bitcoin and Ethereum holdings as collateral by year-end, signaling deeper Wall Street involvement in crypto. Bloomberg, citing sources, reports that this will be offered globally and rely on third-party custodians for staking assets. When Goldman Sachs and BlackRock start nibbling at JPM’s custody revenues, the war is practically over. Banks win without fighting.

Finally, Senator Cynthia Lummis, the solitary crypto champion in Congress, has become the most loyal supporter of the new US collateral system. Her “Strategic Bitcoin Reserve” proposal has moved from fringe conspiracy theory to serious committee hearings. While her grand vision hasn’t yet significantly impacted Bitcoin’s price, her efforts are sincere.

The legal landscape of 2025 is shaped by settled matters and still-dangerous unresolved issues. The current government’s enthusiasm for crypto is so intense that top law firms have set up real-time tracking services for the latest crypto news—like the WilmerHale “US Crypto Policy Tracker”—monitoring regulators’ tireless efforts to roll out new rules for DeFi. Yet, we are still exploring.

At present, US debates revolve around two major legal frameworks:

The GENUIS Act (passed July 2025); officially the “American Stablecoin National Innovation Initiative and Establishment Act,” marks Washington’s move to address the most critical asset after Bitcoin—stablecoins. By mandating strict 1:1 US Treasury reserve backing, it transforms stablecoins from systemic risks into geopolitical tools, similar to gold or oil. Essentially, it authorizes private issuers like Circle and Tether as legitimate purchasers of US Treasuries. A win-win.

Conversely, the “CLARITY Act” remains distant. This market structure bill, intended to definitively clarify SEC and CFTC jurisdiction over securities and commodities, is currently stalled in the House Financial Services Committee. Until it passes, exchanges operate in a comfortable yet fragile interim state—relying on temporary regulatory guidance (which remains the case today) rather than a permanent statutory framework.

This bill has become a political bargaining chip between Republicans and Democrats, both using it as a weapon.

Finally, the repeal of Staff Accounting Bulletin 121 (a technical rule requiring banks to treat custodied assets as liabilities, effectively preventing banks from holding cryptocurrencies) is like opening the floodgates—signaling that institutional capital (and even pension funds!) can finally buy crypto without fear of regulatory reprisal. Correspondingly, market offerings like Bitcoin-denominated life insurance products have begun to appear; the future looks bright.

Old Continent: Innate Aversion to Risks

In ancient times, slavery, customs, and laws often benefited the powerful and oppressed the common people.— Cicero

A mature civilization that nurtures geniuses like Plato, Hegel, or Macron (just kidding)—if its current builders are suffocated by a group of mediocre bureaucrats who only know how to block others’ creations, what’s its meaning?

Just as the church once tied scientists to the stake (or merely judged them), today’s regional powers craft complex and obscure laws, perhaps only to scare off entrepreneurs. The gap between the vibrant, rebellious American spirit and the sluggish, decaying Europe has never been wider. Brussels had a chance to shed its rigid ways but chose an unbearable inertia.

The MiCA regulation, fully implemented by the end of 2025, is a bureaucratic masterpiece and an absolute disaster for innovation.

Marketed as a “comprehensive framework,” in Brussels, the term often means “comprehensive torment.” While it does bring clarity, it’s clarity that deters. The fundamental flaw of MiCA is category mismatch: it treats startups as sovereign banks. The compliance costs are so high they doom crypto enterprises to failure.

Norton Rose has published a memo objectively explaining this regulation.

Structurally, MiCA is essentially an exclusionary mechanism: it classifies digital assets into highly regulated categories (asset-referenced tokens and electronic money tokens) and burdens crypto service providers (CASPs) with a heavy compliance framework, mirroring the MiFID II regime designed for financial giants.

According to Chapters 3 and 4, the regulation imposes strict 1:1 liquidity reserve requirements on stablecoin issuers, effectively banning algorithmic stablecoins by legally declaring them in a “bankrupt” state from the outset (which could itself pose significant systemic risks; imagine being declared illegal overnight by Brussels?).

Furthermore, issuers of “significant” tokens (notorious sART/sEMT) face enhanced supervision by the European Banking Authority, including capital requirements, making the issuance of such tokens economically unfeasible for startups. Today, without a top-tier legal team and capital matching traditional finance, starting a crypto business is nearly impossible.

For intermediaries, Chapter 5 abolishes the concept of offshore and cloud exchanges. CASPs must establish registered offices within member states, appoint qualified resident directors, and implement segregation and custody agreements. Article 6’s “white paper” demands transforming technical documentation into binding prospectuses, imposing strict civil liability for any material misstatements or omissions, effectively piercing the industry’s usual anonymity veil. It’s akin to requiring you to open a digital bank.

Although the regulation introduces passporting rights, allowing a CASP authorized in one member state to operate throughout the European Economic Area without further localization, this “coordination” (a frightening term in EU law) comes at a high cost. It creates a regulatory moat accessible only to well-capitalized actors capable of absorbing AML/CFT compliance, market abuse monitoring, and prudential reporting costs.

MiCA is not merely regulating the European crypto market; it effectively blocks participation by those lacking the legal and financial resources—precisely what crypto founders almost always lack.

Above EU law, the German regulator BaFin has become a mediocre compliance machine, efficient only at handling the paperwork of a declining industry. Meanwhile, France’s ambitions as a European “Web3 hub” or “startup nation” have hit their self-imposed high walls. French startups are not coding—they’re fleeing. They cannot compete with the speed of pragmatic America or relentless innovation in Asia, leading to large-scale talent migration to Dubai, Thailand, and Zurich.

But the real death knell is the ban on stablecoins. Citing “monetary sovereignty,” the EU effectively bans non-euro stablecoins (like USDT), ending the only reliable sector within DeFi. The global crypto economy relies on stablecoins. Brussels has created a liquidity trap by forcing European traders to use low-liquidity “euro tokens” outside the Schengen area—tokens no one is willing to hold.

The European Central Bank and the European Systemic Risk Board (ESRB) have urged Brussels to prohibit “multi-jurisdictional issuance” models—where global stablecoin issuers treat tokens issued in and outside the EU as interchangeable. An ESRB report, chaired by ECB President Christine Lagarde, states that holders outside the EU rushing to redeem tokens issued within could “amplify liquidity withdrawal risks” within the region.

Meanwhile, the UK plans to limit individual stablecoin holdings to £20,000… and imposes no regulation on altcoins. Europe’s risk-avoidance strategy urgently needs reform to prevent regulatory overreach from triggering a full-blown collapse.

My simple explanation: Europe wants its citizens to remain bound by the euro, unable to participate in the US economy and escape stagnation—or even death. As Reuters reports: the European Central Bank warns that stablecoins could drain precious retail deposits from banks in the Eurozone, and any run on stablecoins might have broad impacts on global financial stability.

It’s pure nonsense!

Ideals: Switzerland

Some countries, free from partisan politics, ignorance, or archaic laws, have successfully escaped the binary of “excessive or insufficient” regulation, finding a path of tolerance and integration. Switzerland is such an extraordinary nation.

Its regulatory framework is diverse but effective, friendly in attitude, and both service providers and users welcome:

The Financial Market Supervisory Authority (FINMASA), enacted in 2007, is a umbrella regulation that consolidates banking, insurance, and anti-money laundering regulators, establishing FINMA as the independent, unified regulator of the Swiss financial market.

The Financial Services Act (FinSA) focuses on investor protection. It imposes strict codes of conduct, client classification (retail, professional, institutional), and transparency requirements (key information documents), creating a “fair competition environment” for financial service providers (banks and independent asset managers).

The Anti-Money Laundering Act is the main framework for combating financial crime. It applies to all financial intermediaries—including crypto asset service providers—and sets basic obligations.

The Distributed Ledger Technology Act (DLT Law, 2021) is a “comprehensive law” that amends ten federal laws (including the Code of Obligations and Debt Collection Act), legally recognizing crypto assets.

The Virtual Asset Service Providers Ordinance enforces the Financial Action Task Force’s (FATF) “Travel Rule” with zero tolerance (no minimum thresholds).

Article 305bis of the Swiss Criminal Code defines money laundering offenses.

The “CMTA Standards” published by the Capital Markets and Technology Association, while non-binding, are widely adopted within the industry.

Regulatory bodies include: the Parliament (responsible for enacting federal laws), FINMA (overseeing the industry via decrees and notices), and self-regulatory organizations supervised by FINMA (such as Relai), responsible for overseeing independent asset managers and crypto intermediaries. The Money Laundering Reporting Office (MROS) reviews suspicious activity reports and forwards them to prosecutors.

Thus, Zug Valley has become an ideal place for crypto founders: a clear and logical framework not only allows them to operate but also provides legal protection, reassuring users and banks willing to bear small risks.

Go, America!

Europe’s embrace of crypto isn’t driven by innovation but by fiscal necessity. Since ceding Web2 to Silicon Valley in the 1980s, Europe has regarded Web3 not as an industry to build but as a tax base to harvest, just like everything else.

This suppression is structural and cultural. Against the backdrop of aging populations and strained pension systems, the EU cannot afford an uncontrollable, competitive financial industry. It’s reminiscent of feudal lords imprisoning or killing local nobles to prevent excessive competition. Europe has a horrifying instinct: to prevent uncontrollable change by sacrificing its citizens. For America, this is unfamiliar; the US thrives on competition, ambition, and a certain Faustian drive for power.

MiCA is not a “growth” framework but a death sentence. Its design ensures that if Europeans trade, they do so under surveillance—like monarchs exploiting peasants. Europe effectively positions itself as the world’s luxury consumer colony—a perpetual museum attracting Americans to mourn a past that can never be revived.

Switzerland and the UAE have escaped these historical and structural flaws. They lack the imperial burden of maintaining a global reserve currency and the bureaucratic inertia of the 27-member group—widely viewed as weak by member states. Through the Distributed Ledger Technology Act (DLT Act), they have built trust and attracted foundations with real intellectual property (Ethereum, Solana, Cardano). The UAE has followed suit; no wonder many French are flocking to Dubai.

We are entering an era of surging regulatory arbitrage.

We will witness geographic fragmentation in the crypto industry. Consumers will stay in the US and Europe, with full KYC, heavy taxation, and integration with traditional banks; meanwhile, protocol layers will migrate to Switzerland, Singapore, and the UAE—rational jurisdictions. Users will be worldwide, but founders, VCs, protocol teams, and developers will consider leaving their home markets for more suitable places to build.

Europe’s fate is to become a financial museum. It is creating a polished, shiny legal system for its citizens that is entirely useless or even deadly for actual users. I wonder whether Brussels’ technocrats have ever bought Bitcoin or transferred stablecoins cross-chain.

Crypto assets are becoming an unavoidable macro asset class, and the US will retain its position as the global financial capital. It already offers Bitcoin-denominated life insurance, crypto-backed loans, crypto reserves, endless venture capital support for anyone with ideas, and a vibrant incubator ecosystem.

Conclusion

In short, the “Brussels’ beautiful new world” being constructed is more a clumsy, Frankenstein-like patchwork than a coherent digital framework. It tries to graft the 20th-century banking compliance system onto 21st-century decentralized protocols—mainly by engineers who know nothing about the European Central Bank’s temperament.

We must actively promote a different regulatory approach—one that prioritizes practicality over administrative control—to avoid completely stifling Europe’s already fragile economy.

Unfortunately, the crypto industry isn’t the only victim of this risk-averse obsession. It’s simply the latest target of a complacent, well-paid bureaucratic class hiding in the dull, postmodern corridors of national capitals. This ruling class’s heavy-handed regulation is driven by their lack of real-world experience—they’ve never endured the pain of KYC, passport renewal, or business licensing; thus, despite what Brussels’ so-called tech elites do, founders and users in the native crypto space are left to contend with a group of highly incompetent regulators, producing harmful legislation and little else.

Europe must turn around—and immediately. While Brussels is busy strangling the industry with red tape, the US is actively figuring out how to “regulate” DeFi toward a mutually beneficial framework. Centralization through regulation is inevitable: the collapse of FTX is a warning etched on the wall.

Disillusioned investors seek revenge; we need to escape the current cycle of meme coins, cross-chain bridge exploitations, and regulatory chaos. We need a structure that allows genuine capital to enter safely (Sequoia, Bain, BlackRock, or Citigroup are leading this), while protecting end-users from predatory capital.

Rome wasn’t built in a day, but this experiment has already gone fifteen years, and its institutional foundation remains mired in mud. The window for building a fully functional crypto industry is rapidly closing; in wartime, hesitation means defeat. Both sides of the Atlantic must implement swift, decisive, and comprehensive regulation. If this cycle is truly ending, now is the best time to restore our reputation and compensate serious investors harmed by misconduct over the years.

From the exhausted traders of 2017, 2021, and 2025, there is a call for a final reckoning and resolution on crypto; most importantly, our most beloved assets should reach their deserved historic highs.