In 2023, the crypto industry experienced a milestone, with major jurisdictions such as the EU and the UK tightening their regulatory frameworks. Duncan Ash, the Head of Strategy at blockchain protection firm Coincover, discussed the key trends expected to shape the crypto regulatory landscape in 2024 and how they will impact the evolution of the industry in the long-term.

"Crypto regulation" itself is somewhat of an oxymoron. Although built on the principle of peer-to-peer transfer, the market has gradually moved away from its purist origins as regulators seek greater oversight. Different jurisdictions are moving at different paces of reform. The EU is leading the charge, passing its landmark Markets in Crypto Assets (MiCA) regulation last summer.

The UK has taken a more phased approach and is set to publish a new regulatory regime this year following its consultation period, which ended in February 2024. Progress in the US has been much slower, where the SEC has largely governed through enforcement action and is at loggerheads with the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term.

While it remains to be seen exactly what new regulation may look like and how it will be enforced, it’s inevitable that the future of crypto lies within far more regulated and supervised parameters. As industry players seek to navigate this transition in 2024, here are three key trends set to play a central role in shaping the regulatory landscape:

Crypto Firms Will Seek Regulatory Expertise

Traditional and decentralized finance are becoming more intertwined. The approval of the Bitcoin ETF in the US recently highlighted this. As the gap narrows, we can expect increased hiring by crypto firms seeking financial regulation experience to ensure they are ahead in compliance.

For instance, USDC issuer Circle appointed Heath Tarbet, the CFTC's Former Chairman, as the Chief Legal Officer last July to oversee its regulatory affairs. As regulators continue to ramp up market pressure, crypto firms are likely to prioritize hiring individuals from traditional finance (TradFi) and regulatory sectors to avoid fines and penalties resulting from non-compliance with new requirements.

The aggressive stance taken by regulators against the crypto market underscores the substantial risks involved. For instance, the SEC issued an estimated $5 billion in penalties against crypto firms for a range of offenses between October 2022 and September 2023 alone. This includes breaches of AML regulations and offering unregistered securities.

As you will see when the SEC’s brief is made public tomorrow, they ask the Judge for $2B in fines and penalties. 1/4 https://t.co/HM8dBbn7lp

— Stuart Alderoty (@s_alderoty) March 25, 2024

To navigate these challenges, crypto companies will increasingly seek expertise in TradFi and legal fields to ensure compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with evolving regulatory demands.

New Technology Requires New Regulation

Grappling over the definition of cryptocurrencies as "securities" or "commodities" is not sustainable and will not help make the crypto market safer in the long run. For regulation to be effective in promoting a sustainable future for crypto, regulators will need to understand the complexities of the crypto market and seek rigorous feedback from market participants on any new proposals.

While cryptocurrencies are all part of the same group, they behave differently. This means that regulating the entire ecosystem under a single framework will only create friction between regulators and market participants.

For instance, Stablecoins and cryptocurrencies perform different functions within the crypto ecosystem and, therefore, require different regulatory regimes. Despite being the most popular cryptocurrencies by market cap, Bitcoin and Ethereum have some fundamental differences. The latter provides a decentralized platform for creating and implementing smart contracts and DeFi apps (dApps).

🆕 #EBA final draft Regulatory Technical Standards (RTS) under #MiCAR 📜🔍

These set out the requirements, templates and procedures for handling complaints received by issuers of asset reference tokens (ARTs) 🗂️📝https://t.co/yT3pSGSowh pic.twitter.com/DvycTm2MqI

— EU Banking Authority - EBA 🇪🇺 (@EBA_News) March 13, 2024

Every cryptocurrency does not require its own regulation. Rather, any new regulations should be tailored to the unique attributes of the crypto market and should consider their various use cases.

Electoral Uncertainty to Slow Pace of Regulatory Reform

2024 will be the biggest year in election history, with countries making up over 60% of the world’s economic output set to hold elections. With elections comes uncertainty, and in times of uncertainty, the pace of any regulatory or legislative reform slows down.

Take the UK, for example. Prime Minister Sunak has historically positioned the country as "open to business" and has been a vocal crypto and blockchain advocate. His government has been behind major stablecoin provisions such as those in the Financial Services and Markets Act, but with polls suggesting a change at Downing Street, regulators may prefer to delay the publication of any new framework until after the next general election.

The UK government plans to get new rules governing stablecoins and staking services for crypto assets approved by lawmakers within the next six months, Economic Secretary to the Treasury Bim Afolami says https://t.co/W2v6NBbPwA

— Bloomberg (@business) February 19, 2024

The US finds itself in a similar situation. In July, the House Financial Services Committee passed a landmark bill aiming to develop a regulatory framework for crypto. However, its progress through Congress will likely be slowed as mounting focus is diverted towards the presidential election.

What Next?

Regulation will be a force for good in the crypto market, providing greater trust, transparency, and consumer protection. However, it won’t be a panacea. The implementation of new rules and frameworks is a long process that won’t happen in one "big bang" moment. While 2024 will see this transition continue, we should not expect sweeping reform.