This week in crypto for advisors, André Dragosch from Bitwise Europe shares insights regarding the evolving global regulatory environment for cryptocurrencies, hinting that we might be on the brink of a new era for crypto.
Additionally, Beth Haddock from Warburton Advisers provides answers to questions about how regulatory clarity could influence the crypto market in this edition of Ask an Expert.
– Sarah Morton
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Global Regulatory Update – Ushering in a New Era for Bitcoin and Cryptocurrencies
Much has evolved in the last six months. With Donald Trump assuming office in the U.S. on January 20, it’s worthwhile to note the swift changes his administration has enacted. Transitioning into this new era, we’ve observed numerous favorable regulatory shifts in the U.S., including:
- Executive Order addressing digital financial technology
- Creation of a Strategic Bitcoin Reserve and a national stockpile of digital assets
- Launch of the SEC’s Crypto Task Force
- Progress on the GENIUS Act
- Modification of the SEC’s enforcement approach
The Executive Order to establish a Strategic Bitcoin Reserve has positioned the U.S. as the largest sovereign holder of bitcoins globally, with expectations of further acquisitions on the horizon.
Across the Atlantic, the EU’s “Markets in Crypto Assets” (MiCA) regulation is set to be enforced by the end of 2024, which will likely enhance regulatory clarity within Europe and create consistency in crypto regulations throughout the region.
MiCA appears to be three to five years ahead of U.S. regulations regarding clarity, consistency, and implementation. Should the U.S. adopt comprehensive crypto regulations in the coming years, it could narrow this gap. However, MiCA currently stands as a frontrunner in offering legal certainty for crypto assets in Europe, which could significantly drive institutional adoption there.
Furthermore, the European Central Bank has announced plans to launch the digital euro CBDC in October of this year, ahead of its original schedule. There are whispers that the digital euro might leverage public blockchains like Ethereum, potentially leading to a considerable uptick in Ethereum’s on-chain activity.
It appears that bitcoin and other cryptocurrencies are becoming more mainstream.
However, the new administration’s policies have not necessarily instilled confidence in financial markets. In fact, economic policy uncertainty in the U.S. has risen to levels unseen since the COVID-19 recession in 2020, largely due to escalating trade tensions and job reductions linked to the government.
Fears of a U.S. recession are resurfacing. As indicated by crypto-based betting platform Polymarket, the likelihood of a U.S. recession by 2025 has climbed to 41%. The latest forecasts from the Federal Reserve Bank of Atlanta project GDP growth at -1.8% quarter-over-quarter for Q1 2025.
February witnessed a spike in job cut announcements in the U.S., reaching a peak not seen since the COVID recession.
While these circumstances have undoubtedly put pressure on risky assets worldwide, including bitcoin and cryptocurrencies, the data also presents a favorable outlook due to a weakening dollar and growing expectations for rate cuts from the Fed.
The global money supply, which is nearing historic highs, is accelerating once more, a development that favors scarce assets like bitcoin. Generally, bitcoin tends to flourish in environments with a weakening dollar and growing money supply.
There is also an increasing chance that cryptocurrencies may start decoupling from traditional financial markets due to peculiar factors such as the delayed effects of the bitcoin halving and a persistent supply deficit on exchanges. Structural inflows into U.S. spot bitcoin ETFs and ongoing corporate purchases globally are expected to exacerbate this supply deficit. These elements will likely provide continuous support for cryptocurrencies in the coming months, regardless of the larger economic context.
In any case, the renewed hope for a significant shift in monetary policy amidst global growth concerns, along with ongoing supply limitations, could spark the next wave of adoption and propel crypto assets into the mainstream.
It seems like the golden age of bitcoin and cryptocurrencies has only just begun.
–André Dragosch, Head of Research – Europe, Bitwise
Ask an Expert
Q: With the change in SEC leadership, should businesses anticipate a more favorable regulatory environment, or do they need to brace for new risks?
A: The SEC’s transition away from regulation by enforcement, along with the establishment of the Crypto Task Force, reflects a change in strategy. However, this should not be interpreted as a relaxing of protections against fraud or theft. The focus on consumer protection, market integrity, and cybersecurity endures as key areas for enforcement. Companies should prioritize transparency and ethical practices to align with these expectations. Additionally, as illustrated by the rise of memecoins, litigators and state regulators are poised to fill any gaps left by federal oversight. Increasing market volatility also highlights the necessity for robust operational resilience to navigate these risks.
Q: How does the GENIUS Act stack up against other global regulatory frameworks like MiCA, and what implications does this have for companies engaged in both U.S. and European markets?
A: The GENIUS Act presents a distinct approach to stablecoin regulation compared to MiCA, notably with its focus on global adoption and U.S. dollar dominance. Whereas MiCA seeks to safeguard euro-backed stablecoins within the EU and imposes limitations on non-euro stablecoins in specific contexts, the GENIUS Act aims to promote the international use of USD-backed stablecoins, thereby bolstering the dollar’s significance in global payments.
For companies operating in both jurisdictions, the Act’s reciprocity clauses could streamline cross-border transactions and align regulatory practices with U.S. standards, potentially broadening the presence of dollar-based digital assets.
–Beth Haddock, Managing Partner and Founder, Warburton Advisers
Keep Reading
- Despite significant bitcoin ETF outflows, a large number of investors seem to be retaining their positions.
- Strategy plans to issue $500 million in preferred stock to finance its next bitcoin acquisition.
- SEC Commissioner Hester Peirce expresses her thoughts regarding her agency’s task force on digital assets.