Author: Vahan P. Roth
Source: GIS Reports online
Translated and Compiled by: BitpushNews
Cryptocurrency is transforming from a rebellious technology to a highly regulated asset, reshaping the financial market in the process.
Summary:
Governments are shifting from suppressing crypto to accepting regulation
New regulations enhance control but threaten privacy and decentralization
Compliant assets and "blacklisted" tokens may diverge
Over the past decade, the crypto industry has undergone dramatic changes. From a niche project of programmers and skeptics of government and fiat currency, it has grown into an asset class almost entering the mainstream. Bitcoin, once hidden at the edges of the financial system, is now gradually moving to center stage.
Bitcoin ETFs are now trading globally, pension fund managers are beginning to consider digital asset allocation, and sovereign wealth funds are also testing the waters. This year, the US federal government even established a strategic Bitcoin reserve under President Trump's leadership.
This leap from the margins to the mainstream is inseparable from the changing regulatory approach of governments worldwide.
The Rise of Crypto Regulation
Not long ago, the government's attitude towards cryptocurrency was mainly hostile and dismissive. As usual, officials and regulators instinctively chose to "ban" what they could not understand. But when they realized that they could not truly shut down decentralized networks like Bitcoin unless they shut down the entire internet, their regulatory approach began to shift towards taxation and standardization.
Although these measures deviate from the spirit of "decentralization and freedom" advocated by crypto, they have paradoxically promoted industry development. For many businesses and investors, regulation brought legal certainty and predictability. Before that, almost every business decision was accompanied by legal risks, making projects difficult to advance.
Switzerland was one of the first countries to clearly regulate, thereby attracting many crypto entrepreneurs and establishing the "Crypto Valley" in Zug. Here, entrepreneurs no longer need to worry about whether their company is legal or fear their offices being raided or accounts frozen. As more countries follow suit, crypto companies can operate more confidently globally.
Limits of Regulation
Of course, this wave of regulation sweeping almost globally is not uniform. Some countries take a relatively mild approach, while others are extremely strict. In 2021, China comprehensively banned crypto trading and related businesses (though personal holding remains legal), while the US did the opposite, establishing a national strategic Bitcoin reserve and digital asset repository.
Despite different approaches, the trend is clear: overall regulation is becoming stricter, directly targeting crypto's core advantages—privacy, censorship resistance, monetary stability, and decentralization.
For example, the EU's Markets in Crypto-Assets (MiCA) regulation, while standardizing the market and protecting consumers, also puts significant compliance pressure on token issuers, especially small, innovative startups. MiCA requires reporting for any transaction over 1,000 euros, compared to the US banking threshold of $10,000. Stablecoin issuers must also keep at least 30% of customer funds in banks, which not only increases costs but also introduces banks as intermediaries, potentially increasing risk.
Current anti-money laundering (AML) rules are also becoming increasingly rigid. For instance, if an asset was previously associated with hacking transactions, it may be marked, frozen, or even confiscated, even if the current holder legally purchased it.
This approach ignores an ancient legal principle: in the 1758 British "Miller v. Race" case, the court ruled that a person who unknowingly receives a stolen banknote and exchanges it for service still enjoys ownership. Today's crypto regulation often no longer follows this reasoning.
Two Potential Futures for the Crypto Market
Most Likely: Continued Regulation, Loss of Crypto's Decentralized Value
If the regulatory trend continues, the original crypto characteristics—privacy and decentralization—will be nearly eliminated. At that point, crypto assets will no longer be superior to traditional securities, and user accounts may be arbitrarily frozen or assets confiscated by governments. Decentralization advantages will be weakened, and systemic risks will increase.
This will lead to market fragmentation: on one side, "whitelisted assets" that are highly compliant and can be traded in banks and brokerages; on the other side, "blacklisted assets" developed by anonymous teams, focusing more on privacy and decentralization, but unable to integrate with the mainstream financial system, only circulating in peer-to-peer markets or niche platforms.
Less Likely: Blacklisted Assets Become More Attractive
In some cases, the privacy and sovereignty of blacklisted assets might attract certain investors, potentially creating a premium. Especially tech-savvy, privacy-conscious young investors might be more willing to endure self-custody hassles in exchange for complete asset control. However, from a realistic perspective, this scenario is unlikely.
More Likely: Compliant Assets Increase in Value
Historical experience shows that large-scale capital inflows tend to choose compliant assets. Just as London gold bar prices remain stable while unidentified gold bars are discounted, future compliant crypto assets will be more favored and likely command higher prices.
This will bring a reassessment of the entire crypto asset class. Some tokens most focused on privacy and security might be viewed as "junk debt" due to non-compliance, while highly centralized tokens similar to Central Bank Digital Currencies (CBDC) might be seen as AAA assets due to their "stability", becoming the new darlings.
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