The value that institutions bring to the crypto industry goes beyond just liquidity. It is important to understand the significance of their involvement and the benefits it can bring. While there is still much debate about the impact of institutional participation in a sector known for its contradictions, it is clear that deepening institutional adoption can provide regulatory certainty, which is crucial for industry growth.
One area where institutions are forcing regulators to address is tax and compliance. Questions arise about what trades businesses can legally make, how they should disclose these trades on their balance sheets, and what reporting obligations they have. The definition of taxable events in the crypto space varies depending on the jurisdiction. While US-based traders are required to calculate profit and loss for every trade on decentralized exchanges and on-chain events, other countries have different approaches, and some don’t tax crypto at all.
Regardless of where you reside, understanding your obligations when dealing with digital assets can be challenging. For businesses, the stakes are even higher, as their public accounts must be thoroughly examined, and they often need permission to list Bitcoin on their balance sheets. The higher compliance standards set for enterprises have been a significant barrier to institutional adoption. However, as more financial firms enter the space, they bring with them lawyers and lobbyists who can influence regulators. Even the US Securities and Exchange Commission (SEC) takes notice when major institutions like BlackRock advocate for a Bitcoin ETF.
A recent court ruling in favor of Grayscale against the SEC has demonstrated the power that institutions have in shaping regulations. This ruling sets a precedent that gives institutions more confidence in their ability to influence legislation in their favor.
In addition to regulatory certainty, institutional involvement brings about greater clarity in terms of crypto classification. Institutions need clear guidelines and regulations to operate in the market. With their growing participation, there will be clearer answers about whether Bitcoin, Ether, Solana, and other cryptocurrencies are securities. This clarity benefits the entire industry.
Moreover, institutional involvement helps legitimize digital assets. By participating in the market, institutions make cryptocurrencies less exotic and more mainstream. This undermines the argument of crypto opponents who claim that the industry is involved in money laundering and wash trading. The presence of leading trading firms in the crypto space challenges these negative perceptions.
There are already signs of institutional adoption in the industry. Businesses and governments are actively exploring blockchain-based initiatives, such as central bank digital currency (CBDC) pilots. In Asia, Hong Kong and the Bank of Japan are investigating digital currency programs. Banks in the US and Europe are also offering crypto custody and trading services to their clients. The listing of Europe’s first spot Bitcoin ETF in Amsterdam further demonstrates the growing institutional interest in the industry.
While regulators and institutional players may still lag behind early adopters in terms of expertise, collaboration and open dialogue between all stakeholders can lead to positive outcomes. Each group, including regulators, institutions, and early adopters, brings unique insights to the table.
In conclusion, big institutions have a net positive impact on the crypto industry. Their involvement leads to better regulations and better outcomes for everyone involved. While challenges remain, the deepening institutional adoption of cryptocurrencies brings regulatory certainty, clarity, and legitimacy to the industry, benefiting all participants.