Digital assets became mainstream. Navigating the complex landscape of laws and policies that are reshaping the future of digital currencies and how the industry reacts on them.
Over the past decade, crypto assets, or simply crypto, have grown from a fringe concept to a global phenomenon. As its popularity and use cases continue to expand, governments worldwide are grappling with regulating this new asset class, bringing numerous benefits to investors and businesses alike.
Today’s session will delve into cryptocurrency and institutionalization's complex and dynamic landscape. Our discussion will encompass the principal challenges that impede the institutionalization of cryptocurrency. To equip you with the necessary competencies to navigate these challenges, we will provide a structured framework for effectively scaling your crypto investment. Today we take a rigorous and comprehensive exploration into the world of crypto regulation.
From niche to mainstream: the case for crypto and institutionalization worldwide
Cryptocurrency, once seen as a niche technology reserved for tech enthusiasts and fringe investors, has emerged as a mainstream investment option worldwide. With the global market capitalization of cryptocurrencies crossing $1.17 trillion in 2023, it’s clear evident that the world is slowly waking up to the potential of digital currencies.
However, with the growing popularity of cryptocurrencies and the increasing demand for digital payments, more and more governments are joining the race to establish themselves as leaders in the crypto space.
Do we really need CBDCs?
One of the most significant developments in recent years has been the adoption of central bank digital currencies (CBDCs), which are not only necessary but inevitable. The traditional financial system has several limitations and inefficiencies, and CBDCs have the potential to revolutionize the way we interact with money. CBDCs could offer greater financial inclusion and access, particularly for those who are underbanked or unbanked.
Source: Atlanticcouncil
A number of countries, such as China, Sweden, and Canada, are currently exploring the potential of CBDCs through various pilot testing.
China, for example, has been developing a digital yuan, which is expected to be rolled out in the near future. The European Union is also considering the creation of a digital euro, and the Central Bank of Nigeria recently announced plans to launch a digital naira.
Learn more about why countries develop CBDCs:
South Korea are currently developing innovative solutions for traditional finance, such as cross-border remittance services.
Learn in detail about Korea’s CBDC:
A framework for sustainable growth and safe investment possible?
Another way that governments are institutionalizing crypto is through the regulation of the industry. In the past, the lack of clear regulations has been a significant barrier to the growth of the crypto industry.
In recent years, virtual asset service providers (VASPs) have become increasingly important in the world of finance. VASPs are entities that offer services for the exchange, transfer, and safekeeping of virtual assets, such as cryptocurrencies. However, the decentralized nature of virtual assets has made it difficult to regulate VASPs and prevent money laundering and terrorist financing.
To address these issues, governments and regulatory bodies have introduced Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations for VASPs. AML regulations require VASPs to implement robust measures to prevent money laundering, while KYC regulations require VASPs to verify the identities of their customers to prevent fraud and other illicit activities.
Source: Complyadvantage
As such, in the United States, the Financial Crimes Enforcement Network (FinCEN) requires businesses that deal in cryptocurrencies to register as money services businesses and comply with AML and KYC regulations. Similarly, in Japan, the Financial Services Agency has established a licensing system for cryptocurrency exchanges.
The European Union, however, made a pivoting step to finally approve the world’s first comprehensive regulatory framework for crypto assets Markets in Crypto-Assets (MiCA) regulation. MiCA would require VASPs to obtain a license from the relevant regulatory authority and comply with strict AML and KYC requirements as well as provide the public disclosure of whitepapers and possible risks to investors. It would also establish rules for the issuance of stablecoins and other crypto-assets.
Read more about MiCA:
A little while later, Korea’s National Assembly approved the Virtual Asset Act, a regulatory framework designed to protect cryptocurrency investors and institutionalize digital assets. The act defines virtual assets, specifies countermeasures against ‘unfair’ trading, and outlines the scope of supervision granted to authorities.
Cryptocurrency business operators will be required to keep transaction records, and insurance against cyberattacks or network failure will be mandatory. The regulation aligns with global trends, with the European Union also passing the Market in Crypto Act to counter crypto fraud.
Further regulations regarding virtual asset issuance and regulatory filing are expected to follow, making the Virtual Asset Act the first step in Korea’s institutionalization of crypto assets.
Learn more about Korea’s Virtual Asset Act:
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Ahead to long-term success
Institutionalizing the crypto market is crucial for its continued growth and stability. Regulations like the Virtual Asset Act in Korea and the Market in Crypto Act in the European Union demonstrate that governments and regulatory bodies are taking steps to address issues like money laundering and fraud while also creating a clear framework for crypto businesses to operate within. Such regulations protect investors and encourage institutional investment, ultimately leading to greater mainstream adoption of cryptocurrencies.
As the crypto market continues to evolve, it is important for governments and regulatory bodies to keep pace with new developments and establish consistent, globally-recognized standards to ensure the industry’s long-term success and increase the trust and transparency of the industry.
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