"Regulatory Clarity" Not the Only Answer for Opening Investor Doors to the Crypto Market

Traditional investors bring deep pockets if they are willing to risk the volatility of crypto markets. Many are not. Some are interested in investing, but they prefer to wait for regulation to mitigate risk before they commit. The need to regulate crypto projects often blocks investor support from traditional finance institutions, says Noelle Acheson, former head of research at Coindesk and Genesis Trading. But she asserts that “regulatory clarity” can’t keep up with the pace of innovation in the crypto space:

Institutional investor involvement in crypto markets is good. It is a sign of success. But the outsized weight of its influence has led to the conflation of “crypto potential” with “institutional needs.” This makes it easy for us to forget that crypto emerged retail-first, with hundreds of thousands of individuals leading the way. That, in turn, tends to hone focus on fitting a square peg into a round hole because regulators insist that current rules can cover our industry. This is a generalization, sure, but one that is delaying support for certain areas of progress as infrastructure participants wait for a regulatory clarity that is unlikely to ever get ahead of or even keep up with crypto innovation and demand.

Acheson suggests a more experimental approach to finding the right balance between decentralization and sufficient protection for participants:

…[N]ot all of crypto needs “regulatory clarity” or institutional participation. Much of it simply needs testing with real users and real incentives with some degree of supervision to ensure fair markets and mitigate illicit use. More regulatory sandboxes, for example, could further industry experience while deepening official understanding of the risks and opportunities….

In sum, regulators could give crypto industry builders and market participants more choice in the rules they follow while showing support for good faith human ingenuity and respect for those it helps. And, in so doing, they could perhaps strengthen the appreciation for what regulation has to offer.

Institutional finance and the crypto market will be diametrically opposed to each other in many areas. After all, that is why the crypto market evolved in the first place—as a decentralized financial option for those locked out of opportunities by the highly centralized finance industry. But finding ways of mutual cooperation that don’t conflict with the fundamental purposes of the crypto market might open some financial doors and spur even more innovation.