Aside from liquidity, what do institutions bring to cryptocurrencies? What exactly is your added value? This is an instructive question to ponder, because there is little consensus on what deeper institutional involvement means for an industry that is riven by contradictions.
The long wait for approval of the bitcoin ETF, which gives pensions and funds exposure to btc, may well prove to be a positive catalyst for industry growth. But by focusing on price action, observers are missing the real benefit of large-scale institutional adoption. The biggest benefit of deepening institutional adoption may be the regulatory certainty that comes with it.
Tax and compliance
There are a number of areas where institutional involvement is forcing regulators to provide direct responses. The main ones are taxes and compliance. What operations can a company legally carry out, how should they appear on its balance sheet and what measures should it take to report these activities?
Related: bitcoin ETF: A $600 Billion Turning Point for crypto
Determining what constitutes a taxable event in crypto depends on your domain. While US traders must calculate the profit and loss (PnL) of each trade on a decentralized exchange (DEX), the position of offenders, and on-chain events, other countries take a less rigorous approach, while a few do not. They bother to tax at all.
bitcoin?src=hash&ref_src=twsrc%5Etfw”>#bitcoin ETFs to be delayed until final deadline
The SEC is trying to show that it is not interested and is trying to push back until the final deadline, even though both the SEC and BlackRock know the inevitable outcome.
BlackRock ETF Should Be First… pic.twitter.com/6ZkfUf9WPR
– Magazines (@thescalpingpro) September 29, 2023
Regardless of where you reside, determining your obligations when buying, selling, and storing digital assets can be a headache. But it could be worse: imagine how much more is at stake for companies, whose public accounts must be scrutinized and which typically require permission to even include bitcoin (btc) on their balance sheet.
There are good reasons why higher standards are held to businesses in terms of compliance, disclosure, reporting and taxes compared to consumers. It’s one of the main reasons why serious institutional adoption has taken so long to manifest. But as the trickle of financial firms gaining a foothold in the space becomes a flow, the accompanying entourage of lawyers and lobbyists has begun to pay dividends. When BlackRock starts beating the drum for a bitcoin ETF, even the Securities and Exchange Commission (SEC) has to sit up and take notice.
Grayscale’s favorable court ruling against the SEC on August 29 has demonstrated the power that institutions can muster to force regulators to renegotiate. The precedent set by this appeal decision will further increase the institutions’ confidence in their ability to reframe legislation in their favor.
Seeking regulatory clarity
For those who already have something at stake – sole traders, trading companies, family funds, venture capitalists – greater institutional involvement can only be a good thing. When larger institutions decide they want to participate, regulators are forced to cooperate. Not all of the provisions that are consequently passed in the statutes will help the industry (some will be stupid), but together they provide something that has been missing for years: clarity.
Is bitcoin a security? What about Ether (eth) or Solana (SOL)? The answer, these days, depends on who you ask. Some agencies seem intent on declaring that everything but bitcoin is a security; Others take a more measured approach, focusing their law enforcement efforts on the most egregious token sales and shills.
Related: 10 Years Later, There’s Still No bitcoin ETF, But Who Cares?
Institutions cannot trade assets that are in regulatory no man’s land: they need black and white, not shades of gray. Its growing market share will surely provide clearer answers in terms of cryptocurrency classification, which will benefit the entire industry.
Furthermore, greater institutional involvement is legitimizing digital assets by making them less exotic to those tasked with regulating them. Opponents of cryptocurrencies cannot justifiably claim that the industry is a hotbed of money laundering and wash trading when its most active participants include the world’s leading trading companies.
Signs of institutional adoption
Today, companies and governments are moving forward with blockchain-based initiatives such as CBDC pilots. In Asia alone, Hong Kong and the Bank of Japan are exploring programs involving digital currencies.
Meanwhile, banks from the US to Europe are introducing cryptocurrency trading and custody services to their clients. And in August, Europe’s first spot bitcoin ETF listed in Amsterdam, proving that institutional willpower eventually gets things done.
Regulators and institutional players are still catching up in terms of experience with those who helped build the industry from scratch in its infancy through hands-on involvement. No one has complete control. But as a rising tide lifts all boats, greater institutional involvement will benefit all actors, from the humblest farmer to the richest whale. Rather than assuming that a group has it all figured out, an open and collaborative dialogue will most likely lead to positive results. Regulators, institutions and early adopters offer unique perspectives.
It is not necessary to thank them, but large institutions are clearly positive for the industry. Bigger players produce better rules and better outcomes for everyone.
Graciela Chen She is the CEO of crypto derivatives exchange Bitget, where she oversees market expansion, trading strategy, and corporate development. Prior to joining Bitget, she held executive positions at Fortune 500 unicorn company Accumulus and venture-backed virtual reality startups XRSPACE and ReigVR. She was also an early investor in BitKeep, Asia’s leading decentralized wallet. She was honored in 2015 as a Global Shaper by the World Economic Forum. She graduated from the National University of Singapore and is currently pursuing an MBA at the Massachusetts Institute of technology.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
