Crypto gets red carpet treatment in Paris, and red flags

Virtual-currency entrepreneurs are feeling the heat in the US after the spectacular collapse of FTX, the closure of several crypto-friendly banks and now a top regulator’s case against Binance Holdings Ltd that threatens to engulf numerous trading firms. But it’s a different vibe in Europe, especially France, where tech bros are more likely to get the red-carpet treatment.

Jeremy Allaire, co-founder of stablecoin issuer Circle, is one of them. Speaking on the sidelines of the Paris Blockchain Week junket in the luxury surroundings of the Pavillon Vendome, he described the global shifts in crypto oversight as “a regulatory Game of Thrones” — where you win or you die. His company, which played a starring role in the Silicon Valley Bank crisis when it tried to withdraw a whopping $3.3 billion, is “doubling down” on Europe with applications for multiple licenses in France — an “innovation- forward” country, Allaire says, sporting a regulator-friendly suit and tie.

Paris isn’t alone in vying to be a crypto hub — Allaire was also in London recently — but the rhetoric of Emmanuel Macron’s administration chimes with its view that crypto is part of a bigger contest to attract business. At a recent blockchain event I moderated in London, French officials touted labor-market reforms, tax cuts and a larger post-Brexit continental banking sector as incentives to set up shop in France, where around 50 digital-asset firms have registered with the regulator and domestic champions like Kering SA are still dabbling in the metaverse.

Beyond the faded hype, Paris hopes it can attract coders and tech skills relevant to all sorts of potential digital disruption. New rules have instilled confidence in the European Union’s ability to reduce the crypto risks that have been on full display. The EU’s supervisory framework for digital assets, called MiCA, comes into force in 2024 and covers multiple tokens including stablecoins; it’s why Circle is also keen to grow its new euro-backed token. French markets regulator AMF said in January that it was open to innovation but that the crypto universe now had to choose the path of regulation.

The risk is one of overconfidence — and a backlash if something goes wrong. Since FTX’s dramatic implosion, pressure from nervous French lawmakers on the Macron administration has led to tighter oversight of NFT sports app Sorare and a tougher registration process for digital-asset firms before MiCA goes live. And that was before the US Commodity Futures Trading Commission’s lawsuit against Binance, alleging the exchange routinely broke derivatives rules. (Binance disagrees with the characterisation of allegations and says the complaint is incomplete.)
“Being attractive to business is not the most important thing...Investors need maximum security,” says Senator Herve Maurey, who has called for tougher rules.

What happens in the US will inevitably keep coloring what happens in Europe and France, where there’s no parliamentary majority and where another financial or banking scandal is the last thing Macron needs. EU lawmakers are keeping their guard up, with the focus shifting to NFTs’ money-laundering risks. Away from the canapes and keynote speeches, crypto firms are talking more about the basics of survival — like finding banks that will accept them as customers. “The environment is more unstable than it was a year ago,” says Francois-Joseph Schichan of Flint Global.

For the likes of Circle’s Allaire, this is all part of a journey towards acceptance of tokens such as the digital dollar and euro proxies his company offers. The seal of approval from state institutions could be a step toward ending the crypto Wild West: Citigroup Inc estimates that central banks by 2030 may well issue $5 trillion of their own circulating digital currencies. And maybe for Paris it’s a calculated punt: even if Gucci or LVMH Moet Hennessy Louis Vuitton SE’s virtual handbags don’t go anywhere, France will still be able to export the real thing.

Yet at a time when angry protesters are fighting the perceived inequality of top-down pension reform, and with the French swept up in the global sports-betting boom, even techno-optimist leaders like Macron will be acutely aware of policy risks that seem to favor the privileged at the top over those at the bottom — including the risk of an unexpected, digitally led banking crisis. Let them eat crypto? Maybe not.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. Views are personal, and do not represent the stand of this publication.

Credit: Bloomberg