Crypto is an “inevitable thing” that will survive whether U.S. regulators are on board or not, said Antonio de la Esperanza, legal counsel to Web3 venture capital firm BITKRAFT, when he sat down with Decrypt on the sidelines of this week’s inaugural ETHBarcelona conference.
Esperanza’s specialty is policy and regulation, and while BITKRAFT may be headquartered in Denver, Colorado, he’s following the situation closely on both sides of the Atlantic.
Founded in 1997, BITKRAFT touts itself as a company “built by gamers for gamers,” though it has since included blockchain and “immersive technology” within its scope.
“In the EU, there are clear guidelines saying what you have to do to get digital assets service provider license,” he says, referring to the bloc’s landmark new Markets in Crypto Assets (MiCA) bill—a comprehensive framework governing the issue and provision of services related to cryptocurrencies.
“[The MiCA rules] require you to provide a KYC program, and let the authorities audit your systems for keeping all the wallets separate. You need to provide information about your liquidity. In the US, that has not really been developed,” he told Decrypt. “People are walking on water and trying to see what’s the more compliant way to do things.”
Esperanza doesn’t doubt that crypto will survive in the U.S., despite the hostile regulatory climate, but adds that if, in the unlikely worst-case scenario, crypto is outlawed in the country, it will still develop globally, but the industry will be “smaller, for sure.”
SEC’s Crypto Crackdown
The leading U.S. securities regulator, the Securities and Exchange Commission (SEC), has conducted an aggressive campaign of lawsuits against leading blockchain companies since 2020, when it took Ripple to court for allegedly selling as an unregistered security.
The Coinbase suit indicates a new approach by the SEC. The most conspicuous among the charges is that the exchange is accused of offering unregistered securities through its staking service. However, this argument doesn’t hold water with Esperanza.
“The definition of a security in the US requires several things. One is the investment of money in a common enterprise for an expected profit,” Esperanza said. “I think the SEC is seeing people buying and staking ETH so they can receive rewards because there is a ‘common enterprise’ there that will bring them value.”
He concludes that it’s “not a strong argument” because, he says, the individual stakers are sufficiently decentralized, even if some of them are part of the same pool.
Currently, anyone with a spare $60,000 can buy 32 ETH at today’s price and join the staking club, locking up their crypto to validate transactions on the network and receive rewards. Those with lower budgets can find alternatives, like staking pools, to put their digital money to work.
Ultimately, the final decision on staking in the U.S. will lie with the Supreme Court, which, according to Esperanza, means crypto companies will get the regulatory clarity they desire “very soon.”
AI promises investors quicker returns
Esperanza also touched on AI, the latest buzzword among venture capitalist firms, which has been taking some of the limelight, and venture capital, from crypto recently.
The lure of AI for investment firms is the promise of a world where development times are significantly reduced, meaning earlier returns. It’s also expected to cut workforce requirements down significantly, leading to more efficient expenditure of capital.
Venture funds have about a decade to extract value from their investments after the initial fundraising rounds. With the advent of AI, the process from fundraising to the Initial Public Offering (IPO)—the point when the company first sells its shares to investors—will be reduced significantly.
He offers an example.
“It will take, let’s say 15 years for a regular company to go to an IPO. As an investor, you have to sell in year 10, so you’re losing the extra. Maybe the product can be developed in four years, and in six, you’re ready for an IPO. So I think having AI implemented everywhere is great for ventures.”