Western regulators and the crypto industry have had a sometimes-adversarial relationship, with Senator Elizabeth Warren this week calling on Treasury Secretary Janet Yellen to impose new rules for the sector.
That perspective could risk the U.S. and other nations falling behind China, which has taken a more "holistic" approach, says Mohamed El-Erian, president of Queens' College at Cambridge University and Allianz Chief Economic Adviser.
"China is not waiting," El-Erian told Yahoo Finance Live on Friday. "It has decided it should have a top-down approach, and it has decided that it wants to export its approach, because it gives it access to payments platforms regionally. It gives it access to data. So we have to take this seriously, otherwise we are going to lose the narrative completely."
Warren, in her letter to Yellen, did call for a holistic approach to regulating cryptocurrencies, saying that they pose a threat: "I have become increasingly concerned about the dangers cryptocurrencies pose to investors, consumers, and the environment in the absence of sufficient regulation in the United States," she wrote.
Meanwhile, Securities and Exchange Commission Chair Gary Gensler has commented on sniffing out tokens on the blockchain that mimic U.S. stocks, which are under his purview.
Put together, comments from various U.S. regulators amount to just that: commentary, without either clear regulatory action, or movement on a separate discussed, but not enacted idea: a digital dollar. (Fed Vice Chair of Supervision Randal Quarles recently expressed skepticism about a digital dollar).
In contrast, while China earlier this year cracked down on bitcoin mining and trading operations, citing climate concerns, it's far ahead on developing its own digital currency, referred to as DCEP.
"China's six years ahead of the United States in building a blockchain-based payment system," said Dan Morehead, CEO and Co-Chief Investment Officer at Pantera Capital, in an interview with Yahoo Finance Live.
El-Erian makes clear the onus is not just on governments; companies must also come to the table willing to address regulators' legitimate concerns.
"The crypto world has to take seriously concerns about illicit payments, concern about money laundering and concern about energy use," he said. Regulators and the crypto industry should "speak a common language and try to channel what I think is a really important, disruptive innovation in a way that actually helps finance and the society."