The unexpected benefits of cryptocurrency regulation
Sir Winston Churchill is credited with saying "never let a good crisis go to waste,” indicating that even in times of duress, a silver lining exists. One could then argue that the recent cryptocurrency crash, which caused so many retail investors to lose substantial parts of their digital asset portfolios, resulted in a silver lining indeed – the regulation of the crypto market in the hopes of preventing a similar catastrophe from happening again.
A silver lining or a red herring?
Is regulation a silver lining? How is regulating the one thing that was never intended to be controlled by governments a positive?
Yes, I can fully understand how crypto adepts (of which I consider myself to be one) would strongly oppose the notion of attempting to bring the so-called economy by the people, for the people under the helm of a regulator. This is the same regulator that arguably made such a mess before, which was why Satoshi Nakamoto felt it necessary to create Bitcoin.
So why do I consider this a silver lining? Because it just might be what we need to withstand the current market volatility. At the moment, people are losing a lot of money in crypto, and the market would benefit from a bit of stability. Hopefully, most investors have been smart enough to only invest what they can afford to lose, but when the urgency is high and the rewards are enticing, people tend to take reckless decisions – especially in badly performing or unstable economies.
A step in the right direction
In June 2022, the United Nations Conference on Trade and Development issued recommendations on how their member nations should handle crypto assets due to the economic uncertainty. In short, they have called for registration, high fees, and in some places, even outright bans. Luckily, most regulations currently being considered or implemented are not as strict.
With regulation, added security and traceability, the crypto asset market can open up to institutional investors, providing much-needed stability.
Opinions on these measures aside, it is clear that with regulation comes added security and traceability, which in turn is opening the crypto asset market to institutional investors. With the question of legality and the specter of financial crime out of the way, it is safe for investors like insurance companies and pension funds to include crypto assets in their investment strategies. The increased volume will likely do much to legitimize and stabilize the crypto exchange markets. Hopefully, this will benefit all investors – retail and institutional – in developed and developing regions.
Making crypto a future-fit investment solution
As crypto becomes a part of such investment strategies, traditional custodians must find new ways to help their clients embrace this change and make crypto investments a reality. Digital asset custody requires a watchful eye on how custodians currently handle asset wallets, KYC and KYT operations, exchange connections and real-time trade settlement.
Digital Asset Custody services can help you determine the impact of digital assets on your organization, whether you are a custodian, investor or asset manager. The early mover advantage is very real for digital assets, so the time to act is now!
Interested to learn more? Please feel free to reach out if you would like to exchange thoughts on the future of crypto and new ways to incorporate it into your investment strategy.
By Ivo Luijendijk, Global Blockchain Director, Member of the Atos Scientific Community, FS&I, Atos
Posted on November 14, 2022
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