The crossroads of crypto regulation in the United States and Europe: a testing ground or a museum?

Written by: Castle Labs

Compiled by: Yangz, Techub News

At the time of Satoshi Nakamoto’s whitepaper, mining Bitcoin was very simple, and any player with a mainstream CPU could easily accumulate millions of dollars worth of wealth down the road. Instead of playing The Sims on your home computer, build a lucrative family business that will save future generations from hard work and achieve a return on investment of about 250,000 times.

However, most players are still addicted to Halo 3 on Xbox, with only a handful of teenagers using their home computers to earn a fortune that surpasses that of modern tech giants. Napoleon created legends by conquering Egypt and even Europe, and you just need to click “Start Mining”.

In 15 years, Bitcoin has evolved into a global asset, and its mining relies on large-scale operations supported by billions of dollars in capital, hardware and energy investment. The average power consumption per bitcoin is up to 900,000 kWh.

Bitcoin has given rise to a new paradigm that stands in stark contrast to the heavily gated financial world we grew up in. It may be the first real rebellion against the elite after the failure of the Occupy Wall Street movement. Notably, Bitcoin was born precisely after the great financial crisis of the Obama era – a crisis that largely stemmed from the connivance of casino-style high-risk banking. The Sarbanes-Oxley Act of 2002 was intended to prevent a repeat of the dot-com bubble in the future; Ironically, the financial collapse of 2008 was much more severe.

Whoever Satoshi Nakamoto is, his invention came at the right time, a fierce yet deliberate resistance as fierce as a wildfire, directed at the powerful and ubiquitous Leviathan.

Before 1933, the U.S. stock market was essentially unregulated, governed only by fragmented state-level “Blue Sky laws”, leading to significant information asymmetry and proliferation of knock-on trading.

The liquidity crisis of 1929 served as a stress test that crushed this model, proving that decentralized self-regulation could not contain systemic risk (déjà vu?). ）。 In response, the U.S. government implemented hard resets through the Securities Acts of 1933 and 1934, replacing the “buyer’s responsibility” principle (risk-assumption model) with a central law enforcement agency (SEC) and mandatory disclosure mechanism, thereby harmonizing the legal norms of all public assets to revitalize the system’s solvency… We are witnessing the exact same process reappearing in the DeFi space.

Until recently, cryptocurrencies operated as permissionless “shadow banking” assets, functioning similarly to those of pre-1933 but several times more dangerous due to the complete lack of regulation. The system, with code and hype as its core governance mechanism, fails to fully consider the enormous risks posed by this financial beast. The successive waves of bankruptcies in 2022 are like the stress tests of 1929, showing that decentralization does not equal unlimited returns and sound money; Instead, it creates risk nodes that can engulf multiple asset classes. We are witnessing a shift in the zeitgeist from a libertarian casino-style paradigm to a mandatory compliant asset class – where regulators are trying to make cryptocurrencies a U-shaped turn: funds, institutions, high-net-worth individuals, and even countries can hold them as if they were allocated any asset as long as it is legal, making it taxable.

This article attempts to shed light on the origins of the institutional rebirth of cryptocurrencies – a transformation that is now inevitable. Our goal is to deduce the inevitable outcome of this trend and accurately define the final shape of the DeFi ecosystem.

The implementation of the regulatory framework

Before DeFi truly entered its first dark age in 2021, its early development was defined not so much by relying on new legislation as by federal agencies extending existing laws to fit digital assets. Indeed, everything has to be done step by step.

The first major federal action came in 2013, when FinCEN issued guidance to classify crypto “exchanges” and “service providers” as money services companies, effectively subject to the Bank Secrecy Act and anti-money laundering regulations. We can consider 2013 as the year DeFi was first recognized by Wall Street, which both paved the way for law enforcement and laid the groundwork for repression.

In 2014, the IRS declared that virtual currencies were considered “property” rather than currency for federal tax purposes, complicating the situation by triggering capital gains tax liabilities with each transaction. At this point, Bitcoin has gained legal definition and the ability to be taxed - a far cry from its original intention!

At the state level, New York introduced the controversial BitLicense in 2015, the first regulatory framework requiring disclosures from crypto businesses. Ultimately, the SEC capped off the feast with a DAO Investigation Report, confirming that many tokens are unregistered securities under the HoweVision test.

In 2020, the Office of the Comptroller of the Currency briefly opened the door for national banks to offer crypto asset custody services, but this move was later questioned by the Biden administration - a common practice of previous presidents.

On the other side of the Atlantic, in the Old Continent, the same archaic conventions dominate the crypto world. Influenced by the rigid Roman legal system (as opposed to the common law system), the same anti-individual freedom ethos permeates the potential of DeFi in a regressive civilization. We must remember that the United States is essentially a Protestant country; This spirit of autonomy shaped the United States, a nation that has always been defined by entrepreneurship, freedom, and a pioneer mentality.

In Europe, Catholicism, Roman law, and the remnants of feudalism gave rise to very different cultures. Therefore, it is not surprising that the ancient countries of France, Great Britain, and Germany have taken different paths. In a world that values compliance rather than risk, crypto technology is destined to be severely suppressed.

Thus, early Europe was characterized by a fragmented bureaucracy rather than a unified vision. The industry achieved its first victory in 2015 when the European Court of Justice (Skatteverket v. Hedqvist) ruled that Bitcoin transactions were exempt from VAT, effectively giving the crypto asset currency legal status.

Before the EU uniform law, countries were divided on cryptocurrency regulation. France (PACTE Act, a terrible set of legal systems) and Germany (crypto custody licenses) have established strict national frameworks, while Malta and Switzerland are racing to attract businesses with top-notch regulation.

This era of chaos came to an end with the implementation of the Fifth Anti-Money Laundering Directive in 2020, which mandated strict KYC across the EU, completely eliminating anonymous transactions. Realizing that 27 sets of conflicting rules were unsustainable, the European Commission finally proposed the Markets in Crypto-Assets Regulation (MiCA) in late 2020, marking the end of the era of patchwork regulation and the beginning of a harmonized regulatory regime… To everyone’s frustration.

America’s advanced paradigm

Oh, blockchain, can you see that when Donald cleared the way, what had been imprisoned for a long time was now standing legally?

The reform of the U.S. regulatory system is not truly a systemic reconstruction; It is mainly driven by public opinion leaders. The change of power in 2025 brings a new philosophy: mercantilism overwhelms moralism.

Trump’s issuance of his infamous meme coin in December 2024 may or may not be the climax, but it shows that the elite is willing to make the crypto space great again. Several crypto popes are now at the helm, always moving towards more freedom and space for founders, builders, and retail investors.

Paul Atkins at the helm of the SEC is more of a regime change than a personnel appointment. Its predecessor, Gary Gensler, had viewed the crypto industry with sheer hostility. He has become a thorn in the side of our generation; The University of Oxford also published a paper revealing how painful Gensler’s reign was. It is believed that it is precisely because of their aggressive stance that DeFi leaders have lost years of development opportunities, hindered by a regulator who was supposed to lead the industry but was disconnected from it.

Atkins not only stopped the lawsuit, but essentially apologized for it. His “Project Crypto” plan is a model of bureaucratic turning. The “plan” aims to establish an extremely boring, standardized, and comprehensive information disclosure mechanism that allows Wall Street to trade Solana like oil. Allen International Law Firm summarized the plan as follows:

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

Ensure freedom of choice between custodians and trading venues

Embrace market competition and promote the development of “super apps”

Support on-chain innovation and decentralized finance

Innovation exemptions and commercial viability

Perhaps the most critical shift has occurred in the Treasury. Janet Yellen has seen stablecoins as a systemic risk. And Scott Bescent — a man with a bureaucratic seat but hedge fund mind — saw what they were all about: the only net new buyer of U.S. Treasuries.

Bescent is well versed in the tricky algorithm of the U.S. deficit. In a world where foreign central banks are slowing down their purchases of U.S. Treasuries, stablecoin issuers’ appetite for short-term Treasury bonds is a solid boon for the new Treasury Secretary. In his eyes, USDC/USDT is not a competitor to the US dollar, but a pioneer of the US dollar, extending US dollar hegemony to turbulent countries where people would rather hold stablecoins than depreciated fiat currencies.

Another “villain” who has been idling is Jamie Dimon, who threatened to fire any trader who touched Bitcoin, but now has made the most profitable 180-degree turn in financial history. JPMorgan’s crypto asset mortgage business, launched in 2025, is the white flag it raises. According to a report by The Block, JPMorgan Chase plans to allow institutional clients to use Bitcoin and Ethereum holdings as collateral for loans by the end of the year, signaling that Wall Street is further diving into the crypto space. According to Bloomberg, citing people familiar with the matter, the plan will be available globally and will rely on third-party custodians to custody staked assets. When Goldman Sachs and BlackRock began to eat into JPMorgan’s custody fee revenue, the war was effectively over. Banks don’t win.

Finally, Cynthia Lummis, the lonely crypto lady in the Senate, is now the most loyal supporter of the new collateral system in the United States. Her proposal for a “strategic Bitcoin reserve” has moved from fringe conspiracy theories to serious committee hearings. Her grand argument didn’t really affect the price of Bitcoin, but her efforts were sincere.

The legal landscape of 2025 is defined by matters that have been settled and those that remain dangerously unresolved. The current government enthusiasm for the crypto space is so high that top law firms have set up real-time tracking services for the latest crypto news: such as Latham & Watson’s “U.S. Crypto Policy Tracker”, which keeps an eye on the latest developments in the tireless introduction of new regulations for DeFi by regulators. However, we are still in the exploratory phase.

At present, the debate in the United States mainly revolves around two major legal systems:

the GENIUS Act (passed in July 2025); The bill (full name “U.S. Stablecoin National Innovation Guidance and Establishment Act”) marks Washington’s finally tackling the most critical asset after Bitcoin - stablecoins. By mandating strict 1:1 Treasury reserve backing, it transforms stablecoins from systemic risks into geopolitical tools, akin to gold or oil. The bill essentially authorizes private issuers like Circle and Tether, making them legitimate buyers of U.S. Treasury bonds. It’s a win-win.

On the contrary, the CLARITY Act is still far away. The market structure bill, which aims to finally clarify the SEC and CFTC dispute over the definition of securities and commodities, is currently stranded in the House Financial Services Committee. Until the bill is passed, exchanges will be in a comfortable but fragile middle ground – operating on temporary regulatory guidelines (which they still are) rather than permanent guarantees by written law.

Currently, the bill has become a point of contention between Republicans and Democrats, with both parties appearing to use it as a weapon in political games.

Finally, the repeal of Staff Accounting Bulletin 121 (a technical accounting rule that requires banks to treat assets in custody as liabilities, effectively preventing banks from holding cryptocurrencies) is like opening the floodgates, marking the beginning of institutional capital (and even pension funds!). Finally, crypto assets can be purchased without fear of regulatory retaliation. Correspondingly, Bitcoin-denominated life insurance products have begun to appear on the market; The future is bright.

The Old World: An innate aversion to risk

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

What is the point of a mature civilization that has given birth to geniuses like Plato, Hegel and even Macron (just kidding) if its current builders are stifled by a group of mediocre bureaucrats who only know how to prevent others from creating?

Just as the church has burned scientists at the stake (or simply tried them), today’s regional powers have designed complex and obscure laws that may only serve to scare away entrepreneurs. The chasm between the vibrant, young and rebellious American spirit and the scattered, faltering Europe has never been greater. Brussels had a chance to break free from its usual rigidity, but chose to rest on its laurels.

The Markets in Crypto-Assets Regulation (MiCA), fully implemented by the end of 2025, is a masterpiece of bureaucratic intent and an absolute disaster for innovation.

MiCA is marketed to the public as a “comprehensive framework”, but in Brussels the term usually means “total torture”. It does bring clarity to the industry, but it’s prohibitively clear. The fundamental flaw of MiCA is the category mismatch: it regulates startups as sovereign banks. The high cost of compliance is destined to lead to failure for crypto companies.

Norton Rose published a memorandum that objectively explains the regulation.

Structurally, MiCA is effectively an exclusive mechanism: placing digital assets in highly regulated categories (asset-referenced tokens vs. e-money tokens) while burdening crypto-asset service providers (CASPs) with a burdensome compliance framework that replicates the MiFID II regulatory regime typically designed for financial giants.

Under Chapters 3 and 4, the regulation imposes strict 1:1 liquidity reserve requirements on stablecoin issuers, effectively prohibiting algorithmic stablecoins by leaving them legally “bankrupt” from the beginning (which in itself can pose a significant systemic risk; Imagine being outlawed overnight by Brussels? ）。

Additionally, institutions issuing “significant” tokens (the notorious sART/sEMT) face increased regulation from the European Banking Authority, including capital requirements, making it economically unfeasible for startups to issue such tokens. Today, opening a crypto company is nearly impossible without a team of top lawyers and capital to match traditional financial businesses.

For intermediaries, Chapter 5 completely eliminates the concept of offshore and cloud exchanges. CASPs must establish a registered office in a member state, appoint a resident director who undergoes the “eligibility” test, and implement a segregated escrow agreement. The Section 6 “white paper” requires the transformation of technical documentation into a binding prospectus, imposing strict civil liability on any material misrepresentation or omission, thus piercing the corporate veil of anonymity often cherished by the industry. This is tantamount to asking you to open a digital bank.

Although the regulation introduces a right of way that allows CASPs authorized in one member state to operate throughout the EEA without further localization, this “harmonization” (a dreaded word in EU law) is costly. It creates a regulatory moat where only extremely well-capitalized institutional players can afford the costs of AML/CFT integration, market abuse monitoring, and prudential reporting.

MiCA doesn’t just regulate the European crypto market, it effectively blocks access for participants who don’t have the legal and financial resources (which crypto founders almost always lack).

On top of EU law, the German regulator BaFin has become a mediocre compliance machine, with efficiency only in handling the paperwork of an increasingly micro-industry. At the same time, France’s ambitions to become Europe’s “Web3 hub” or “startup nation” have hit its own walls. French startups are not programming, they are fleeing. They cannot compete with the pragmatic speed of the United States or the relentless innovation of Asia, leading to a massive flow of talent to Dubai, Thailand and Zurich.

But the real death knell is the ban on stablecoins. The EU effectively banned non-euro stablecoins (such as USDT) on the grounds of “protecting currency sovereignty”, effectively ending the only reliable sector in DeFi. The global crypto economy runs on stablecoins. By forcing European traders to use low-liquidity “euro tokens” that no one outside the Schengen area wants to hold, Brussels has created a liquidity trap.

The European Central Bank and the European Systemic Risk Committee have urged Brussels to ban the “multi-jurisdictional issuance” model, in which global stablecoin companies consider tokens issued within the EU and tokens issued outside the region interchangeable. The ESRB, chaired by ECB President Christine Lagarde, said in a note that the rush by non-EU holders to redeem EU-issued tokens could “amplify the risk of a run in the zone.”

Meanwhile, the UK wants to limit individual stablecoin holdings to £20,000… Altcoins are not regulated at all. Europe’s risk-off strategy urgently needs to be overhauled before a full-blown collapse of regulators.

I would like to explain it simply: Europe wants its citizens to remain bound by the euro, unable to participate in the US economy and flee from economic stagnation, or, in other words, death. As reported by Reuters: The ECB has warned that stablecoins could siphon valuable retail deposits from eurozone banks, and a run on any stablecoin could have widespread implications for the stability of the global financial system.

This is simply nonsense!

Ideal paradigm: Switzerland

There are countries that, unhindered by partisan politics, ignorance, or outdated laws, have managed to break free from the binary opposition of regulatory “excess and inadequacy” and find an inclusive approach. Switzerland is such an extraordinary country.

Its regulatory framework is diverse, but it is effective and friendly, and actual service providers and users are happy to see the results:

The Financial Market Supervision Act (FINMASA) is an umbrella regulation that establishes the Swiss Financial Market Supervisory Authority as a unified and independent regulator of the Swiss financial market by merging banking, insurance and anti-money laundering regulators.

The Financial Services Act (FinSA) focuses on investor protection. It creates a “level playing field” for financial service providers (banks and independent asset managers) by mandating a strict code of conduct, customer classification (retail, professional, institutional) and transparency (basic information sheet).

The AML is the main framework for combating financial crime. It applies to all financial intermediaries (including crypto asset service providers) and sets the underlying obligations.

The DLT-Law (2021) is an “umbrella act” that amends 10 federal laws, including the Debt Code and the Debt Enforcement Act, to legally recognize cryptoassets.

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

Article 305 bis of the Swiss Penal Code defines the crime of money laundering.

The CMTA standard, issued by the Capital Markets and Technology Association, is not mandatory but has been widely adopted by the industry.

Regulators include the Parliament (which enacts federal acts), the Swiss Financial Market Supervisory Authority (which regulates the industry through decrees and circulars), and self-regulatory organizations overseen by the Swiss Financial Market Supervisory Authority (such as Relai), which oversee independent asset managers and crypto intermediaries. The Money Laundering Reporting Office reviews suspicious activity reports (the same as traditional finance) and refers them to prosecutors.

As a result, the Zug Valley is an ideal place for crypto founders: a logical framework that not only allows them to do their jobs, but also allows them to operate under a clear legal umbrella, which reassures both users and banks willing to take on a small amount of risk.

Forward, America!

The Old Continent’s embrace of the crypto space is not driven by a desire for innovation but by a pressing financial need. Since the Web2 Internet was ceded to Silicon Valley in the 80s, Europe has seen Web3 not as an industry worth building but as a tax base to be harvested, just like everything else.

This repression is structural and cultural. Against the backdrop of an aging population and an overwhelmed pension system, the EU cannot afford a competitive financial industry that is not under its control. This is reminiscent of feudal lords imprisoning or killing local nobles to avoid excessive competition. Europe has a terrible instinct to stop uncontrollable change at the expense of its citizens. This is alien to the United States, which thrives on competition, aggressiveness, and even a certain Faustian will to power.

MiCA is not a “growth” framework, but a death sentence. It is designed to ensure that if European citizens trade, they must be carried out in a monitoring grid to ensure that countries share the benefits, just like a monarch exploiting farmers. Europe is essentially positioning itself as the world’s luxury consumer colony, a timeless museum for marveled Americans to come to pay homage to a past that cannot be resurrected.

Countries like Switzerland and the UAE are freed from the shackles of historical and structural flaws. They have neither the imperialist baggage of maintaining a global reserve currency nor the bureaucratic inertia of a group of 27 member states – a bloc that is seen as weak by all member states. Exporting trust through the Distributed Ledger Technology Act (DLT Act), they attract foundations that hold actual intellectual property (Ethereum, Solana, Cardano). The UAE has followed suit; No wonder the French are flocking to Dubai.

We are entering an era of regulatory arbitrage proliferation.

We will witness a geographical fragmentation of the crypto industry. The consumer side will remain in the United States and Europe, accept complete KYC, bear heavy taxes, and integrate with traditional banks. The agreement layer will be moved to rational jurisdictions such as Switzerland, Singapore and the UAE. Users will be all over the world, but founders, VCs, protocol parties, and developers will have to consider leaving the home market to find a better place to build.

Europe’s destiny was to become a financial museum. It is protecting its citizens with a beautiful and shiny legal system that is completely useless or even fatal to actual users. I can’t help but wonder if the technocrats in Brussels have ever bought Bitcoin or moved some stablecoins across chains.

Crypto assets becoming a macro asset class are inevitable, and the United States will retain its position as the global financial capital. It has made significant strides in offering Bitcoin-denominated life insurance, crypto asset collateral, crypto reserves, endless venture capital support for anyone with an idea, and a vibrant builder incubation soil.

epilogue

All in all, the “brave new world” that Brussels is building is more like a clumsy, Frankensteinian patchwork than a coherent digital framework. It tries to clumsily graft the 20th-century banking compliance system onto a 21st-century decentralized protocol, and the designers are mostly engineers who know nothing about the ECB’s temperament.

We must actively advocate for a different regulatory system, one that prioritizes reality over administrative control, lest we completely stifle Europe’s already weak economy.

Unfortunately, the crypto space is not the only victim of this risk paranoia. It is just the latest target of the high-paid complacent bureaucracy entrenched in the boring, postmodernist corridors of capitals. The reason why this ruling class is heavily supervised is precisely because they lack practical experience. They have never experienced the pain of KYC an account, a new passport, or a business license; So while there is a so-called tech elite at work in Brussels, the founders and users of the crypto-native space have to deal with a group of extremely incompetent people who have done nothing but concoct harmful legislation.

Europe must turn and act now. While the EU is busy stifling the industry with red tape, the US is actively determining how to “regulate” DeFi, moving towards a framework that benefits all parties. Centralization through regulation is obvious: FTX’s collapse is a warning on the wall.

Those investors who hold losses are hungry for revenge; We need to break free from the current “wild west” cycle of meme coins, cross-chain bridge exploits, and regulatory chaos. We need a structure that allows real capital to enter safely (Sequoia, Bain, BlackRock, or Citi is leading the way) while also protecting end users from predatory capital.

Rome was not built in a day, but this experiment has been going on for fifteen years, and its institutional foundation has not yet come out of the quagmire. The window of opportunity to build a functioning crypto industry is rapidly closing; In war, hesitation is defeated, and swift, decisive and comprehensive regulation must be implemented on both sides of the Atlantic. If this cycle is really coming to an end, now is the perfect time to redeem our reputation and compensate all serious investors who have been hurt by bad actors over the years.

Exhausted traders from 2017, 2021 to 2025 demanded a reckoning and a final ruling on crypto issues; And most importantly, our favorite assets deserve the all-time highs they deserve.

Let’s take action!