Written by: Vahan P. Roth
Compiled and organized by: BitpushNews
Summary:
Governments are shifting from suppressing cryptocurrencies to accepting regulation.
New regulations enhance control but threaten privacy and decentralization.
Compliant assets and 'blacklisted' tokens may diverge.
Over the past decade, the cryptocurrency industry has undergone dramatic changes. From a niche project favored by a group of programmers and skeptics of government and fiat currencies, it has grown into an asset class that is nearly mainstream. Bitcoin, once hidden on the fringes of the financial system, is now gradually stepping into the spotlight.
Bitcoin ETFs are now traded globally, pension fund managers are beginning to consider allocating digital assets, and sovereign wealth funds are also testing the waters. This year, the US federal government even established a strategic Bitcoin reserve under the leadership of President Trump.
This leap from the margins to the mainstream is inseparable from the shift in regulatory thinking among governments.
The Rise of Cryptocurrency Regulation
Not long ago, the government's attitude towards cryptocurrencies was mainly one of hostility and contempt. As usual, officials and regulators instinctively chose to 'ban' due to their inability to understand. However, when they realized that unless they shut down the entire internet, they could not truly shut down decentralized networks like Bitcoin, regulatory thinking began to shift towards taxation and regulation.
Although these measures spiritually deviate from the 'decentralization and freedom' advocated by cryptocurrencies, they paradoxically promote industry development in reality. For many businesses and investors, regulation brings legal certainty and predictability. Prior to this, almost every business decision was accompanied by legal risks, making projects difficult to advance.
Switzerland is one of the first countries to clearly regulate cryptocurrencies, attracting a large number of crypto entrepreneurs and establishing a 'Crypto Valley' in Zug. Here, entrepreneurs no longer have to worry about the legality of their companies, nor fear office raids or account freezes. As more countries follow suit, crypto companies can operate more confidently on a global scale.
Limits of Regulation
Of course, this wave of regulation sweeping across the globe is not uniform. Some countries take a more lenient stance, while others are extremely harsh. In 2021, China completely banned cryptocurrency trading and related businesses (but personal ownership remains legal); the United States, on the other hand, has established a national strategy for Bitcoin reserves and digital asset storage.
Despite the varying approaches, the trend is clear: regulation is tightening overall, directly hitting the core advantages of cryptocurrencies—privacy, censorship resistance, monetary stability, and decentralization.
For example, the EU's Markets in Crypto-Assets Regulation (MiCA) not only regulates the market and protects consumers but also places significant compliance pressure on token issuers, especially those small, innovative startups. MiCA requires any transaction exceeding €1,000 to be reported, whereas the threshold for fund reporting in the US is $10,000. Stablecoin issuers must also keep at least 30% of customer funds in banks, which not only increases costs but also introduces banks as intermediaries, thereby increasing risks.
Today's anti-money laundering (AML) rules are becoming increasingly rigid in implementation. For example, if an asset was previously associated with hacking activities before multiple transactions, even if the current holder purchased it legally, it may be flagged, frozen, or even confiscated.
This approach overlooks an age-old legal principle: in the 1758 case of Miller v. Race in the UK, the court ruled that a holder who unknowingly receives a stolen banknote in exchange for services still retains ownership. However, today's cryptocurrency regulation often disregards this principle.
Two Futures for the Crypto Market
High Probability: Continued regulation and loss of decentralized value in cryptocurrencies
If the trend of regulation continues, the initial characteristics of cryptocurrencies—privacy and decentralization—will be virtually eliminated. At that point, crypto assets will no longer be superior to traditional securities, and user accounts may be arbitrarily frozen, with assets confiscated by the government. The advantages of decentralization will also be weakened, leading to increased systemic risks.
This will lead to a market split: on one side are 'whitelisted assets,' highly compliant and tradable at banks and brokerages; on the other side are 'blacklisted assets,' developed by anonymous teams, focusing more on privacy and decentralization but incompatible with mainstream financial systems, circulating only in peer-to-peer markets or niche platforms.
Lower Probability: Blacklisted assets may be more attractive
In certain cases, the privacy and sovereignty of blacklisted assets may attract some investors, leading to a premium. Particularly among tech-savvy, privacy-focused young investors, there may be a greater willingness to bear the hassle of self-custody in exchange for complete control over their assets. But from a realistic perspective, the likelihood of this occurring is low.
More Likely: Increase in the value of compliant assets
Historical experience shows that large-scale inflows of capital are more likely to favor compliant assets. Just as the price of London gold bars remains stable while unmarked gold bars may be discounted, compliant crypto assets will be more favored in the future, with higher prices.
This will lead to a reevaluation of the entire category of crypto assets. Some tokens that emphasize privacy and security may be seen as 'junk bonds' due to non-compliance; while those that are highly centralized, resembling central bank digital currencies (CBDCs), may be regarded as AAA assets due to their 'stability' and become new favorites.
