What Impact Are Regulations Having on the Digital Assets Ecosystem?
In recent years, digital currencies have been all the rave. However, the idea that digital assets are exclusively some form of currency is slowly falling by the wayside as different use cases are emerging and being rapidly adopted. This May, The Fintech Times is looking to showcase some of these new methods and explore how the digital asset ecosystem is evolving.
Having identified some of the biggest digital asset innovations in the last year, we now set our sights on one of the key factors that could dictate innovation to come in the future: regulations. We reached out to the industry to find out what some of the biggest regulatory changes that are impacting the digital assets space.
Crypto asset ETPs have changed the game
According to Natalia Łątka, director of public policy and regulatory affairs at Merkle Science, the crypto risk management and threat detection platform, the acceptance of exchange-traded products has increased digital assets’ legitimacy.
“A significant part of crypto assets’ transformation in the public eye is due to the regulatory approvals of crypto asset exchange-traded products. These approvals are catalysts for institutional and retail adoption. When regulatory bodies approve crypto ETPs, they offer a level of security and legitimacy that was previously unavailable in the crypto asset markets. For instance, the SEC‘s endorsement of Bitcoin ETFs has been viewed as a turning point for the broader adoption of crypto assets.
“It not only fosters the integration of crypto asset-related products into a regulated environment but also narrows the divide between the crypto sector and the traditional financial industry. The approval of crypto ETPs allows large-scale investors to engage with crypto assets within a framework that aligns with their operational and regulatory requirements.
“Institutional-grade ETPs provide a safer, more transparent, and more efficient means of investing, which, in turn, encourages institutions to allocate part of their portfolios to these assets.
“On the retail side, the approval of crypto ETPs democratises access to crypto assets. Retail investors can now participate in the crypto asset market through familiar investment avenues, and this reduces the technological and financial barriers that typically prevent individual investors from buying, holding, and trading crypto assets directly.”
Better communication leads to greater acceptance
Analysing how regulations are creating better communication channels by better transparency, Oz Olivo, VP of product management for Inrupt, the data infrastructure software provider, said: “2023 saw the need for regulatory compliance and practical deployment scenarios change the narrative in a big way. Blockchain has faded as the focus of the discussion as organisations realised that completely overhauling their infrastructure was not practical.
“With the passage of yet more data privacy legislation (The Australian Data Availability and Transparency Act for example), the conversation is shifting to data transparency, data sharing, and consent and how these capabilities can be achieved in a way that complements existing infrastructure and technology. Overall, I expect more constructive advances in the space this year the core requirements are the area of focus, as opposed to excitement and buzz over specific technologies.”
Bitcoin was a good start. On to the next one
The approval of Bitcoin ETFs has had a massive impact on the fintech industry. However, there are other cryptocurrencies that need to be looked at says Kadan Stadelmann, CTO at Komodo, the open-source tech workshop.
“The idea that the SEC has suddenly started debating if Ethereum (ETH) is or isn’t security presents a major obstacle for the digital assets space. Major players are not only pushing for the approval of Ether ETFs but also already using the Ethereum blockchain for various financial products and applications. The lack of regulatory clarity — and the potential impact of a similar ruling on other cryptocurrencies besides ETH — is preventing crypto innovation and adoption.”
Building upon success
Marcus Hughes, crypto exchange Kraken’s global head of regulatory strategy, notes how education to help regulators is paramount to ensuring a blossoming ecosystem.
“Crypto is experiencing a resurgence of interest. Regulators and legislators across the globe have dedicated time and resources over the past few years to understand this emerging asset class and begin to build regulatory frameworks.
“In most jurisdictions, the industry has had an early indication as to whether their government and regulators’ approach to digital assets will help to support the responsible growth of the crypto ecosystem or could hinder overall progress.
“From a Kraken standpoint, we are focused on educating regulators and legislators in their efforts to build out their regulatory frameworks along with others on a global stage. Aligning these regimes effectively ensures that crypto investors and institutional adopters have clear and consistent rules of engagement, regardless of where in the world they are based.”
