Expect new crypto regulations to follow Bitcoin ETFs

Besides liquidity, what do institutions bring to crypto? How much are they worth? This is an instructive question to ponder, as there is little consensus on what deep institutional engagement means in a conflict-ridden industry.

The long-term wait for Bitcoin ETF approval could be a positive catalyst for industry growth, providing exposure to BTC pensions and funds. But by focusing on price action, viewers are missing out on the real benefits of broad institutional adoption. Perhaps the biggest benefit of deepening institutional adoption is the regulatory certainty it brings.

Tax and compliance

There are several areas where institutional involvement forces supervisors to provide direct answers. Chief among these are taxation and compliance. What types of transactions can a business legally engage in, how should they be disclosed on their balance sheets, and what steps should they take to report these activities?

Related: Bitcoin ETFs: A $600B milestone for crypto

Deciding what constitutes a taxable event in crypto is up to you. While US traders are required to calculate the profit and loss (PnL) on a decentralized exchange (DEX), perps position and on-chain event on each trade, other countries take a less strict approach, and few bother to address taxes. Absolutely.

#Bitcoin ETF will be delayed until the final deadline

Although both the SEC and BlackRock are aware of the inevitable outcome, the SEC is trying to show they are not interested and pushing the dates until the final deadline.

The BlackRock ETF should be the first… pic.twitter.com/6ZkfUf9WPR

— Mags (@thescalpingpro) September 29, 2023

Regardless of where you live, determining your obligations when buying, selling and storing digital assets can be a headache. But it could be worse: imagine how much risk is at stake for businesses whose public accounts must be audited and who need permission to even list Bitcoin (BTC) on their balance sheets.

There are good reasons to set a higher bar on compliance, transparency, reporting, and taxation for enterprises compared to consumers. It is the main reason why it took so long for serious institutional adoption to emerge. But as financial firms' ploy to gain a foothold in the space has shifted, the barrage of lawyers and lobbyists is starting to pay off. When BlackRock starts beating the drum for a Bitcoin ETF, even the Securities and Exchange Commission (SEC) should sit up and take notice.

On August 29, Grayscale's favorable court decision against the SEC showed that power utilities can force regulators to renegotiate. The premise of these appellate decisions further increases the institutions' trust in them by structuring the law.

Seeking regulatory clarity

For those who already have skin in the game – sole traders, businesses, family funds, venture capitalists – greater institutional involvement can only be a good thing. When the big institutions decide to step in, it forces regulators to play ball. As a result, not every provision pushed into the legal books will help the industry – some will be asinine – but they will generally provide clarity that has been lacking for years.

Is Bitcoin safe? What about Ether (ETH) or Solana (SOL)? The answer, at the moment, depends on who you ask. Some agencies seem intent on declaring everything Bitcoin safe; Others take a more measured approach, focusing their enforcement efforts on the most alarming token sales and derivatives.

Related: 10 Years Later, There's Still No Bitcoin ETF – But Who Cares?

Institutions cannot trade assets under control No Man's Land: They need black and white, not shades of grey. As their participation in the market increases, it is inevitable that they will provide clearer answers in terms of crypto classification, which will benefit the entire industry.

Furthermore, greater institutional involvement can legitimize digital assets by making them alien to those charged with controlling them. Opponents of crypto cannot claim that the industry is a hotbed of money laundering and that the most active participants include the world's leading businesses.

Signs of institutional adoption

Today, businesses and governments are moving forward with blockchain-based initiatives like the CBCC 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 crypto protection and trading services to their customers. And in August, Europe's first Bitcoin ETF was listed in Amsterdam, proving that institutional willingness will eventually get things done.

Regulators and institutional actors are still holding on to the professions that helped build the industry from the ground up through hands-on involvement. No one is perfect. But just as a rising tide lifts all ships, institutional participation benefits all players, from the humble farmer to the wealthy whaler. Rather than assuming that a group has it all figured out, open and collaborative discussion can lead to positive outcomes. Regulators, institutions and early adopters each offer unique insights.

You don't have to thank them, but large institutions are a positive for the industry. Bigger players produce better rules – and better outcomes for all.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.