Why Digital Asset Regulation Can Positively Impact Mass Adoption

Following industry turbulence, governments in the US, UK, and Europe are proposing measures to protect digital asset owners from the threat of unregulated risk.

The fall of FTX has capped off a difficult year for cryptocurrencies. With an estimated industry-wide loss of $3.9bn in 2022, a recent report into all crypto losses has identified that over 95 percent occurred as a result of digital hacking. To protect consumers from the current risks associated with crypto investment and decentralisation, the US, UK, and European governments are proposing regulatory measures—by doing so, there's likely to be a positive impact on mainstream adoption.

Protecting consumers and providing reassurance

Given the recent turbulence of collapsing crypto tokens and their tumbling values, US Congress has moved to implement its first ever subcommittee dedicated to developing the legal frameworks surrounding digital assets, fintech, and inclusion. Importantly, this includes providing clear legislation, policies that promote financial technology for underserved communities, and a commitment to best practices within the entire ecosystem.

In the UK, the government has announced plans to regulate crypto in the same vein as traditional finance—through the mitigation of risk, ensuring fair and robust standards, and strengthening rules around custodians and intermediaries. In short, who has the authority to facilitate customer transactions, store their funds, and why.

This is a major step forward in terms of transparency and trust for those championing wider crypto adoption. Clearly defined regulation not only brings accountability, it protects consumers from the current problems posed by market volatility and digital threats. With increased trust comes increased adoption, paving the way for the future of digital assets.

Europe leads the way

Where the US and UK governments have only begun exploratory investigations, the European Union is already preparing to vote on its proposed Markets in Crypto Assets (MiCA) regulation. 

Following the April 2023 vote, MiCA will dictate a licensing regime for crypto wallets and exchanges, and specific reserve requirements for stablecoin issuers, within all its member states—a combined population of 450 million people.

Although MiCA is seen by many as a landmark bill, there’s no defined end-to-end process on decentralisation, NFTs, or lending. With digital assets continuing to evolve to find their place in the world, it’s no surprise that any legislation will likely have to follow suit.

More than just crypto

Without a single authority to govern how crypto is regulated, the industry remains speculative. Through regulation, a safer ecosystem—i.e. one less vulnerable to external manipulation and data breaches—can thrive. Public confidence is likely to lead to more stable market values, and there’s also a wider impact on web3 and blockchain to be considered, too. Greater crypto adoption means that new and innovative technologies can be developed and integrated into modern society, in addition to increased financial security and token ownership.