Institutional Involvement: The Catalyst for Regulatory Clarity in Cryptocurrency Industry
Summary:
This article highlights the benefits institutional investors bring to the crypto industry, beyond providing liquidity. It suggests that their increasing participation will lead to regulatory clarity and improved rules for the entire crypto sector. The piece also points out the continuously rising institutional adoption, legitimizing cryptocurrencies and forcing regulatory bodies to adapt. The author concludes by remarking that institutional engagement can be beneficial to everyone involved in the crypto industry.
In addition to providing liquidity, institutions bring valuable contributions to the cryptocurrency sector. It is insightful to consider the advantages institutions deliver in an industry characterized by myriad complexities. The lingering anticipation for approval of Bitcoin ETFs, offering pensions and funds BTC exposure, could potentially spur the industry's growth. However, by focusing solely on price movements, many overlook the true potential benefit of widespread institutional engagement - the arrival of regulatory certainty.
As institutions join the crypto space, regulatory authorities are compelled to provide definitive directions in key areas, notably taxation and compliance. These directions answer critical questions such as what transactions are legal for businesses, how these should be recorded in financial statements, and guidelines for reporting these activities.
Generally, tax stipulations concerning crypto vary across jurisdictions. Whereas US traders are obliged to determine profit and loss on every decentralized exchange trade, positions, and on-chain events, other countries implement less stringent measures, and some even completely exempt crypto from tax.
Regardless of geographical location, understanding obligations for buying, selling, and storing digital assets can be challenging. The stakes are significantly higher for businesses. They deal with double scrutiny of public accounts and often need approval to contain Bitcoin in their balance sheets.
Enterprises comply with a higher standard in terms of compliance, disclosure, reporting, and taxation compared to individuals. This dynamic contributes to the slow progress in significant institutional adoption of crypto. However, as more financial entities gradually secure positions in the crypto space, this is starting to bring positive changes. When powerful players like BlackRock advocate for a Bitcoin ETF, even the Securities and Exchange Commission (SEC) takes heed.
Grayscale's successful battle against the SEC in court on August 29 epitomizes the influence of institutions in pushing regulators to adapt. The precedent set by this decision further reinforces institutional confidence in reshaping relevant legislation to their advantage.
Existing stakeholders in the crypto industry, such as sole traders, trading firms, family funds, and venture capitalists, stand to benefit from expanded institutional participation. When powerful institutions express interest in the sector, regulatory bodies are compelled to respond. While not all resulting legislative changes may be beneficial, overall they offer much-needed clarity.
Is Bitcoin a security? What about Ether or Solana? Answers to these questions vary depending on the asker. Some authorities seem bent on labeling anything apart from Bitcoin a security, while others adopt a balanced approach, focusing mostly on extremely questionable token sales and promotions.
Institutions need clear definitions for their asset trades; they don't do well with ambiguous situations. Their increased participation in the market is sure to offer clearer crypto classifications, benefiting everyone in the industry. It also lends legitimacy to digital assets, reducing their novelty as regulatory bodies gain more experience with them. The leading global trading firms cannot be part of an industry extensively accused of money laundering and wash trading.
Currently, institutional adoption continues to increase, with businesses and governments undertaking blockchain-based initiatives, such as Central Bank Digital Currency pilots. Alongside these, banks worldwide offer crypto custody and trading services to customers. In August, Europe debuted its first-on-the-spot Bitcoin ETF in Amsterdam, demonstrating the potential success of institutional determination.
While both regulatory and institutional entities are still gaining skills to match, the industry pioneers, progress in the sector is a learning experience for all. As the adage goes, a rising tide lifts all ships; increased institutional engagement will benefit everyone, from the small-scale yield farmer to the wealthiest crypto enthusiast. Constructive dialogue is the best way forward, drawing on unique insights from regulators, institutions, and early adopters.
While you do not have to voice your appreciation, the presence of large institutions brings overall benefits to the industry. Greater actors lead to superior rules, resulting in improved outcomes for everyone involved.
About the author: Gracy Chen is a knowledgeable figure in the crypto derivatives exchange, Bitget. As the company's overseeing director, she manages market expansion, business strategies, and corporate development. Prior to joining Bitget, she occupied executive roles at Accumulus, a Fortune 500 unicorn, and venture-backed VR start-ups XRSPACE and ReigVR. Chen is an early investor in BitKeep, a leading decentralized wallet in Asia. She was deemed a Global Shaper by the World Economic Forum in 2015 and is currently pursuing an MBA degree at the Massachusetts Institute of Technology. However, her views, thoughts, and opinions expressed in this article are strictly hers and do not represent Cointelegraph's stance. The article does not serve as legal or investment advice.
Published At
9/30/2023 5:30:06 PM
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