Clifford Chance

Following highs and lows for the crypto industry in 2023 including notably the conviction of Sam Bankman-Fried of FTX, 2024 promises to be an interesting year. As the first comprehensive regulatory regimes begin to take effect in key financial centres and the world watches the US following the SEC's landmark January 2024 approval of 11 applications for spot Bitcoin ETFs, it is clear that both the market and the regulation governing it are maturing.

As part of our recent International Festival of Fintech Ding Chen (Bullish) and Tyler Williams (Galaxy), joined us to consider how the crypto market is developing, what the priorities are for global regulators, as well as some of the challenges of integrating digital assets into existing regulatory frameworks and new frameworks being implemented across the globe.

The panel looked to the future, predicting that further institutional adoption of crypto is coming, buoyed by increasing optimism of further regulatory progress, as well as how the US and wider landscape is devloping.

Some of our key takeaways include:

• Jurisdictions have adopted varying approaches to regulation with differing impacts for businesses. The EU's approach of developing a comprehensive overarching regulatory regime under MiCA can be contrasted with other global financial centres such as Singapore and Hong Kong taking a more focussed approach.
• The US has been more conservative and has to date, adopted a "walled garden" approach to crypto regulation. The approval of spot Bitcoin ETFs was a significant milestone, but key US regulators have taken a regulation by enforcement approach as opposed to providing a new regulatory framework for the crypto industry or clear rules on how to apply the existing regulatory frameworks to these new technologies. There is a need for technical resolution of key operational areas such as custody and securities, banking and commodities broker-dealer regulation before full-scale institutional adoption can be realized.
• Regulators, especially in the EU, are prepared and have been working to understand the industry. However, there is still a need for a deeper understanding of the technology and the various business models.
• With the introduction of new regulations like MICA in the EU, firms will face significant compliance challenges, especially those that were previously unregulated or only subject to AML registrations.
• There is cooperation between regulators across jurisdictions, especially in regulatory enforcement actions and law enforcement investigations. However, there is less global policy development for crypto so far than is seen for traditional markets.
• Further institutional adoption of crypto, significant developments in ongoing industry litigation, and the potential impact of US elections will be drivers of crypto development in 2024 on regulatory progress.
• To respond to regulatory developments, businesses should stay informed about changes, be adaptable, and ensure compliance with the evolving regulatory landscape. Firms must also be prepared for the technical and operational challenges that new regulations will bring.

Speakers:

• Ding Chen, Head of Regulatory, Bullish
• Tyler Williams, Head of Regulatory and Legislative Affairs & Regulatory Counsel, Galaxy
• Riccardo Coassin, Counsel, Clifford Chance
• Steve Gatti, Partner, Clifford Chance
• Monica Sah, Partner, Clifford Chance