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Crypto Will Prevail Through the Evolving Regulatory Landscape

by Janine Lindsey

Crypto Isn’t Dead: Regulatory Trends Point Towards a Tipping Point

Despite the turmoil and implosions experienced in the crypto world last year, the industry is poised for a turning point on its path towards mass adoption. Drawing parallels to the 2008 financial crisis, we can see that the process of recovery and growth is well underway, albeit slow. In this article, we will explore three regulatory trends that are driving this transformation: changing sentiments in the United States, the activation of the regulatory waterfall on an international scale, and the industry’s commitment to self-reform.

The United States is a significant player in the crypto market, and reasonable observers have long been advocating for sensible regulations in this space. Recognizing that digital asset adoption affects US economic competitiveness, national security, and consumer protection, a new group of bipartisan lawmakers has introduced legislation that aligns with these core interests. For example, the Payment Stablecoin legislation seeks to protect consumers by defining stablecoin reserve requirements conservatively and providing a clear path for businesses to issue stablecoins. Additionally, this legislation creates demand for US dollars and treasuries, safeguarding the dollar’s role as the world’s reserve currency. While the passage of any crypto bill is not guaranteed, crypto’s influence in district and circuit courts makes it increasingly difficult for lawmakers to defend the status quo. This could be a defining moment for crypto in the US.

On a global scale, the stage is set for the regulation of digital assets. Standard-setting organizations like the BIS, FATF, FSB, and IMF are likely to lead the way, with the concept of “virtual asset service provider” already being adopted as a foundational classification in crypto regulation. While the G20’s recent endorsement of IMF-FSB recommendations signals increasing interest at the multinational level, global coordination is yet to reach the level critical for uniform rules, as seen after the 2009 financial crisis. However, this presents an opportunity for emerging regional power centers like Dubai and Singapore to operate at the top of the regulatory waterfall and attract global talent, promote local economic growth, and capture market share in the digital economy. Collaboration and iteration across multiple forums may also offset the risks of multiple conflicting rules.

The evolving regulatory landscape presents both risks and opportunities for the digital asset industry. Complying with applicable laws, both old and new, offers one of the biggest opportunities for blockchain companies. For instance, projects like “Aave Arc,” which aimed to address concerns around sanctions and anti-money laundering, have established the feasibility of closed protocol deployments with restricted access to businesses that adhere to compliance standards. This concept has been adopted by the Monetary Authority of Singapore in its Project Guardian sandbox, potentially serving as the basis for future regulation. Furthermore, the industry has invested in new on-chain “passport” solutions secured by zero-knowledge encryption, enhancing identity verification and creating commercial opportunities for compliant participation in the digital economy. Ensuring compliance not only aligns with moral imperatives but also contributes to pushing crypto across the tipping point.

In conclusion, the crypto market is on the verge of a turning point towards mass adoption. Changing sentiments in the United States, the activation of the regulatory waterfall on an international scale, and the industry’s commitment to self-reform are the three key regulatory trends that are driving this transformation. By embracing sensible regulations, crypto can establish itself as a legitimate player in the global economy while ensuring compliance with laws and regulations that protect consumers and national interests. The recovery and growth of the crypto industry are inevitable, and those who perceive it as dead are overlooking the signs of its impending resurgence.

Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the opinions of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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