USA wins bitcoin race: These are the consequences Europe must now fear

A new industry with new business models like debit cards for BTC and value creation is emerging on Bitcoin and other digital assets. The news of the last few months suggests that the global race will once again be decided in the USA. Why Europe cannot compete with the US and what the consequences are for each and every one of us.

Observing what has happened in the crypto market in recent months, it is striking that the dominance of American investors, financial services providers and companies in the digital assets sector has continued to increase. The major caesuras and narratives in the crypto sector originated in the US. Be it Facebook with Libra (now Diem), PayPal with its Bitcoin service, MicroStrategy and Tesla with their multi-billion dollar Bitcoin investments, or more recently Morgan Stanley becoming the first truly large bank to offer access to Bitcoin.

There is a lack of comparable news, with similar clout, from Europe. The question of where the commercially successful part of the crypto sector originates, and with it value as well as value creation, can be answered more and more clearly.

This impression is confirmed by the European and German banks in particular. While one or the other blockchain pilot tests can be found, when it comes to digital assets, things look rather lukewarm, at least among the big banks. There is a lack of strength of opinion and openness. The fear of making mistakes and looking bad in public opinion too strongly dominates the actions of traditional European financial services providers. However, the European investment elite is causing the exact opposite with this attitude: the development is going against them, as can already be seen today in the American crypto advances. American institutions and financiers give the impression that they are more willing to adjust and revise their opinions, knowing that vanity ends up being a major economic risk.

Of course, Europe and Germany have a hard time competing with venture capital sums from the United States. On the other side of the Atlantic, there is more available capital to invest. For example, U.S. investment bank BNY Mellon and Silicon Valley Bank were instrumental in funding digital asset custodian Fireblocks. The crypto company was thus able to raise $133 million in its Series C round.

Another example is venture capitalist (VC) Andreessen Horowitz, which has already invested in various crypto startups and recently led the Series A funding round of OpenSea’s NFT marketplace as lead investor. That raised $23 million. While such financings are commonplace in the U.S. and more of a side note among crypto news, they are a rarity in Germany and Europe. In this country, when a crypto startup like Bitwala raises 15 million euros from mostly domestic VCs like High Tech Gründerfonds or Earlybird, it’s quite something.

1. It’s not like nothing is happening in Europe at all. Every now and then, money from a traditional European bank or venture capitalist finds its way to a crypto startup.
2. However, to develop a competitive blockchain ecosystem with global leadership, the current momentum and volume is not enough.
3. Much, much more would have to happen in order not to lose out.

The consequences of this reluctance are much greater than one might think at first glance. Since Europe lost the race for the platform economy, we now have to live with dependency. Our data is processed by Google, Facebook and Amazon, and that is where value and value creation are created. Even the largest cloud providers are not in Europe, but in the USA. This is not only economically annoying, but also from a sovereign control and autonomy perspective.

Now, in these and the coming months, sovereignty over “data 2.0” will also be decided: our money. History seems to be repeating itself in that it is the U.S. that is using “monetary force” to build the financial infrastructures of the future. Above all, three components play a crucial role here: ownership, custody and settlement.

The triad to dominance: possession, custody and settlement

Ownership. The tip of the iceberg and currently the most important linchpin of the crypto economy is Bitcoin. American investors, see Tesla or Microstrategy, are buying into the Bitcoin market more than their European counterparts. This is shown, among other things, by the listing of Bitcoin Treasuries. Bitcoin accumulation continues to shift in favor of the U.S. and its citizens and businesses.

Custody. At the same time, it is also U.S. asset managers and financial institutions that are providing access and custody of Bitcoin and digital assets. Here, the digital asset manager Grayscale would be worth mentioning, as well as the above-mentioned crypto custodian Fireblocks or a Morgan Stanley investment bank offering Bitcoin financial products to its wealthy clients. In perspective, such services extend not only to American customers, but also to European ones. This should soon be the case with PayPal, when its Bitcoin purchase and custody service is also offered in this country, but the private keys are under American access.

Settlement. Furthermore, there is also a need for settlement structures for digital assets. In addition to PayPal, it is Facebook’s Diem that is likely to shape infrastructures here in the future. But the same applies to specialty crypto areas such as non-fungible tokens (NFT). The NFT marketplace OpenSea mentioned above is majority American-owned, as is Dapper Labs’ NFT Blockchain Flow. The next Amazon, for example, the leading NFT marketplace, is thus likely to be in the U.S. again.

Waiting for the iShares Bitcoin ETF

Where most capital is managed is also where the music plays. Of the top ten asset managers in the world, seven are American. Yet concrete reports have gone out from the majority of these asset managers in recent months that they are flipping the “bitcoin switch.” European funds are just as affected by their entry into the market as American ones. Just think of the Blackrock brand iShares of which millions of Europeans own ETFs. A not insignificant part of the Bitcoin supply is likely to be found in precisely these products in the future.

The fairy tale of decentralization

Despite the blockchain narrative of decentralization and independence from centralized corporate structures, we are moving in exactly the opposite direction for now. PayPal or Facebook’s Diem have nothing to do with the wishful thinking of an autonomous crypto-economy. The triad of ownership, custody and settlement outlined above shows where the journey is headed.

In the future, Facebook or Spotify will no longer only help us as a “log-in aid” when we want to use a service on a website but are too comfortable to create a password. Because then Facebook and Co. will offer not only data management, but also the management of our money, whether it’s the digital euro or Bitcoin. If the principle of “everything from a single source” appeals to us, then we need do nothing more than continue to sit back and let the USA do it. However, those who relinquish responsibility should not complain in retrospect if things do not go their way. More than ever, Europe needs to move fast, fast, fast.