Global: The Impact of Bitcoin ETFs on Crypto Regulation

The role of institutions in the crypto industry has long been a subject of debate. Beyond liquidity, what unique value do institutions bring, and how do they affect the crypto landscape? These questions are essential, especially in an industry marked by contradictions and rapid change.

The anticipation of Bitcoin ETF (Exchange-Traded Fund) approval, which would grant pensions and funds exposure to BTC, could potentially act as a catalyst for the crypto industry’s growth. However, many observers primarily focus on price movements, often overlooking the true advantage of widespread institutional adoption: regulatory certainty.

Institutional participation is compelling regulators to provide clear answers to several critical questions, with taxation and compliance at the forefront. These questions revolve around what trades businesses can legally engage in, how they should report them on their balance sheets, and the necessary steps for reporting such activities.

The definition of a taxable event in the crypto space varies by jurisdiction. While U.S.-based traders must meticulously calculate profits and losses for every trade, including decentralized exchanges and on-chain events, other countries adopt less stringent approaches, and some don’t tax crypto at all.

Regardless of location, navigating tax obligations related to buying, selling, and storing digital assets can be a complex endeavor. This complexity increases significantly for businesses that undergo public scrutiny and require permission to list Bitcoin holdings on their balance sheets.

Enterprises face higher compliance, disclosure, reporting, and taxation standards compared to individual consumers. This disparity has been a significant reason for the slow institutional adoption in the crypto space. However, as more financial firms enter the crypto arena, they bring with them teams of lawyers and lobbyists, resulting in a more favorable environment for institutional interests.

Even regulatory bodies like the U.S. Securities and Exchange Commission (SEC) are compelled to pay attention when prominent institutions, such as BlackRock, advocate for a Bitcoin ETF. A recent example of institutions influencing regulatory decisions is Grayscale’s court victory against the SEC, which is indicative of the power institutions wield in reshaping legislation in their favor.

Institutional involvement benefits existing stakeholders, such as sole traders, trading firms, family funds, and venture capitalists. When major institutions express interest in the crypto space, it prompts regulators to engage in constructive discussions. While not every regulatory provision may be beneficial, collectively, they bring something that the industry has lacked for years: clarity.

The question of whether Bitcoin, Ether, or Solana, among others, qualify as securities remains unresolved and varies depending on the regulatory body consulted. Institutions require regulatory certainty, not ambiguity. Their increased participation in the crypto market is likely to provide clearer answers regarding the classification of cryptocurrencies, benefiting the entire industry.

Moreover, institutional involvement lends credibility to digital assets, making them less exotic to regulators tasked with overseeing them. Claims of money laundering and wash trading become less tenable when the industry’s most active participants include leading global trading firms.

Today, businesses and governments are actively exploring blockchain-based initiatives, including Central Bank Digital Currency (CBDC) pilots. Banks worldwide are introducing crypto custody and trading services for their clients. Notably, Europe witnessed the listing of its first spot Bitcoin ETF in Amsterdam in August, demonstrating institutional determination.

While regulators and institutional players are still catching up in terms of expertise, greater institutional involvement is likely to benefit all participants in the crypto ecosystem. An open and collaborative dialogue involving regulators, institutions, and early adopters can lead to positive outcomes. Each group offers unique insights, and collectively, they contribute to a healthier industry.

In conclusion, big institutions, despite the challenges they bring, ultimately have a positive impact on the crypto industry. Their presence contributes to better regulations and, consequently, better outcomes for all participants, from the smallest yield farmers to the most significant players in the market.