From potential tax cuts to the proposed creation of an initial coin offering (ICO) haven, the government of France has put in strong efforts to facilitate the growth of its local crypto industry and market.
However, as of January 1, 2019, the euro only accounts for 2.9 percent of the daily trading volume of Bitcoin, massively falling behind the Japanese yen and the U.S. dollar. Much of the evidence points towards a lack of growth and market growth stagnation. What has gone wrong in the plans of the government of France to bolster its cryptocurrency and blockchain sector?
Overview of France’s Proposed Plans to Relieve Pressure on Crypto
In May 2018, Bruno Le Maire, the finance minister of France who was officially appointed in mid-2017, said during an interview with Alex Stachtchenko, the co-founder of two France-based blockchain associations, Blockchain Partner and La Chaintech, that a sudden passion for cryptocurrency had seized him.
“I was a rookie a year ago, but a sudden passion has seized me. It took me a year. Let’s teach this knowledge to our fellow citizens to make France the first place for blockchain & cryptocurrency innovation in Europe,” Le Maire said.
In previous months, before the public disclosure of his interest in consensus currencies, Le Maire proposed the implementation of legislation to develop a global hub for ICOs in France, inspired by the accomplishments of Switzerland and the city of Zug, which is widely recognized as “Crypto Valley.”
A March Financial Times report revealed that Le Maire has been working with local regulators and lawmakers to pass a bill allowing local blockchain projects to issue tokens and retail investors to participate in token sales with freedom and fewer regulatory hurdles.
Speaking to a French publication Numerama, Le Maire explained:
“France has every interest in becoming the first major financial centre to propose an ad hoc legislative framework that will allow companies initiating an ICO to demonstrate their seriousness to potential investors. Blockchain [technology] will offer new opportunities to our startups.”
Both startups and individual investors anticipated France to evolve into a leading cryptocurrency market that could compete against established markets in the likes of Japan, South Korea, Switzerland, Malta, Singapore, and the U.S.
The public statement of France’s finance minister contributed to the increase in optimism towards the long-term growth of the French cryptocurrency industry, as it was the first case in which a high-ranking government official expressed significant interest in cryptocurrencies as an asset class and properly regulating it to lure in startups from the global market.
What Went Wrong?
However, over time, as France failed to make ends meet and materialize the country’s plans, startups and investors started to lose confidence in the government’s strategy and vision.
The financial authorities of France announced their plans to regulate the cryptocurrency market and ICOs as early as March of last year. Ten months in, France is nowhere close to passing a bill that would provide a regulatory-friendly and efficient startup ecosystem.
No major cryptocurrency firms and blockchain projects have relocated to France. In contrast, Malta, Singapore, and South Korea have been able to lure in multi-billion dollar projects and firms like Binance and Upbit with practical policies.
The inability of the government to deliver on its promises created even more uncertainty in the market as startups and investors that anticipated a cryptocurrency-friendly France by the end of 2018 were left disappointed.
In November 2018, France had an opportunity to ease the pressure on the cryptocurrency market and regain the trust of digital asset investors through a tax cut for cryptocurrency trading.
Although the proposed bill amendment only suggested a minor 6.2 percent drop in cryptocurrency taxes from 36.2 percent to 30 percent, the amendment’s crucial objective was to clarify cryptocurrency taxation.
Given that many major markets, including South Korea and Japan, have not implemented comprehensive taxation frameworks on cryptocurrency trading, the approval of the amendment would have given France an edge over its competitors.
The budget bill amendment, which was proposed by the Finance Committee of the National Assembly chairman Eric Woerth, had a high probability of being passed by the government, and investors in the market anticipated the change in cryptocurrency taxation policy to be implemented given that it received sufficient support from lawmakers.
The change still had to be approved by the upper house of parliament, and without its support, even with lawmakers’ backing, the budget bill amendment could not have been passed.
Tax Policy Change Rejected
On December 18, France’s National Assembly officially rejected tax amendments proposed by Eric Woerth and other lawmakers in the government, refusing to lower capital gains tax and tax exemptions for cryptocurrency traders.
The proposal to decrease the 36.2 percent tax on cryptocurrency investment to a flat 30 percent was welcomed by the National Assembly, but it is still yet to be finalized.
The decrease in the capital gains tax from 36.2 percent to 30 percent is insignificant, given that France’s non-real estate assets are taxed at a flat 30 percent. For many years, cryptocurrencies have been taxed more than non-real estate assets.
The National Assembly also turned down a proposal to implement a favorable policy for cryptocurrency users, which was submitted in consideration of the volatility of the asset class.
None of the Plans Materialized
With the tax amendment turned down by the National Assembly, the ICO bill of France still in the works, and favorable cryptocurrency regulatory frameworks for startups yet to be implemented by the government, France has failed to deliver any of the plans the government announced in early 2018.
The stagnation in the cryptocurrency sector of France and an overall decline in the daily trading volume of major crypto assets in Europe were inevitable. Many European countries, including France, have not followed up on their initial efforts to revitalize the European cryptocurrency exchange market.
At one point, the decline in the daily volume in Japan and South Korea when the Bitcoin price reached a new yearly low at $3,120 allowed the euro-to-BTC trading pair to overtake the Japanese yen daily.
However, following a series of non-events and the rejection of the tax amendment, the cryptocurrency trading volume has declined in Europe, and France has struggled to see meaningful progress in the growth of the local market as a consequence.
Currently, several European countries are still attempting to encourage blockchain development and the adoption of cryptocurrencies without the presence of effective policies.
In December 2018, seven EU countries led by Malta and France created a consortium called the Mediterranean Seven to increase the usage of blockchain technology in education, transport, mobility, shipping, Land Registry, customers, company registry, and healthcare.
“This can result not only in the enhancement of e-government services but also increased transparency and reduced administrative burdens, better customs collection and better access to public information,” the declaration of the Mediterranean Seven read.
The intent of France in running initiatives like the Mediterranean Seven while refusing to adopt pro-cryptocurrency policies remains unclear, and it directly contradicts the country’s willingness to be open-minded towards the integration of the blockchain.
Can France Rebound?
The root issue in the stagnation of France’s cryptocurrency sector is evidently the government’s tendency to provide false promises and fail to deliver on important occasions.
Japan, for instance, recently announced that it would allow institutional investors to participate in token sales and enable blockchain projects to run private token sales in compliance with existing local financial authorities.
In late November, during an internal meeting, the Financial Services Agency (FSA) of Japan discussed the possibility of actively exploring the legalization of ICOs for institutional investors and accredited investors.
Following the meeting, Kakao, the largest internet conglomerate in South Korea, reportedly raised around $300 million from private investors in Japan, running a private ICO with institutional investors, with the approval of the FSA and local financial authorities.
“Kakao has been securing strategic partners to help improve and grow the global blockchain ecosystem by obtaining new capital. It could be recognized as a private sale, but it’s not open to individual investors and is participated by institutions that are partnering with Kakao. Currently, it is impossible to finalize exact numbers regarding the funding round, and the company is not in the position to openly share which companies are involved in the initiative. Kakao needs to communicate with its partner companies first,” a Kakao representative said.
France could certainly recover from its recent shortcomings and begin to work on growing its local cryptocurrency and blockchain sector. But, the country cannot expect major startups and investors to enter the French market without necessary regulatory frameworks and policies in place, especially now that Malta, Singapore, Hong Kong, and many other countries are actively implementing practical policies to create a secure and efficient environment for both startups and investors.