The global blockchain-as-a-service market, valued at $829 million in 2021, is projected to reach $84.6 billion by 2031, growing at a compound annual growth rate of 59.3%. It’s a trajectory that speaks to the increasing importance of blockchain technology across various sectors. However, industry leaders argue that realizing this potential and broader crypto adoption hinges on one crucial factor: regulatory clarity.

Neil Bergquist, CEO of crypto exchange and bitcoin ATM operator Coinme, believes that clear regulations are essential for widespread cryptocurrency adoption. In a recent interview, Bergquist emphasizes the role of regulatory frameworks in shaping the future of digital assets.

"We're seeing more positive trends and momentum over the last year," he says. "I think we're at a point now where regardless of who wins in November, it'll continue to be positive and will be better than the current environment of ambiguity and headwinds from the [Securities and Exchange Commission]."

The State of Crypto Regulation 

The global regulatory environment for cryptocurrencies and blockchain technology has changed along with the boom in popularity of crypto investment in the late 2010s and early 2020s. 

Different jurisdictions have adopted varied approaches. In the United States, 2023 saw key developments such as the introduction of the Clarity for Payment Stablecoins Act and ongoing debates about the classification of tokens as securities. However, the regulatory environment remains fragmented, with different rules at the federal and state levels.

Bergquist highlights this fragmentation: “Crypto has been at the state level, so we've gone to every state and educated them on bitcoin and blockchain, and they've given us determinations. And what we're seeing is a divide. I mean, there are some states that heavily regulate it, and there are some states that say, bitcoin isn't money, and we regulate financial institutions, so therefore, we don't regulate you.

“But think from a trend perspective, regulators now are forming a perspective on a state and a federal level and are having to say how they're going to regulate it.”

The European Union has taken a more unified approach with the Markets in Crypto-Assets Regulation, which came into effect in June 2023. MiCAR aims to create a harmonized regulatory framework across the EU, targeting crypto-asset service providers and issuers.

In the Asia-Pacific region, places like Japan, Singapore, and Hong Kong are leading the development of supportive crypto regulations. Australia has initiated a token mapping exercise and is developing a legislative framework for digital asset platforms.

Regulation and Adoption

Regulatory clarity plays a crucial role in fostering trust and encouraging mainstream adoption of cryptocurrencies. This applies to both individuals and traditional financial services firms who may be looking to increase their crypto profile. 

"I think there's a lot of partners that are more traditional, Fortune 1000 types that are in a wait-and-see mode from a federal regulation perspective,” says Bergquist.

This cautious approach from larger companies stems from concerns about potential regulatory backlash. 

"What they don't want to do is get heavily involved and then it turns out, 'Oh, a regulator disagrees with that,’ and they’ve now created a headache for themselves,” Bergquist notes.

The banking sector, in particular, has been hesitant to fully embrace cryptocurrencies due to regulatory uncertainty. Bergquist says, “The Treasury, OCC and [the Financial Crimes Enforcement Network] who are regulating banks are putting a lot of pressure on banks to not have any exposure to digital currency or the industry, and that is causing banks to stay away.”

At the same time that some banks remain hesitant, there seems to be an openness to involvement in a consistently regulated crypto industry. For example, the banking, financial services, and insurance segment has dominated the blockchain-as-a-service market share and is expected to continue this trend. However, without clear regulations, this potential may not be fully realized. 

The Role of Global Coordination

Global standard-setting bodies are working to create more cohesive regulatory frameworks. The Financial Stability Board has strengthened its global regulatory framework for crypto-asset activities, focusing on safeguarding client assets and enhancing cross-border cooperation.

The International Organization of Securities Commissions has issued guidelines for regulating crypto asset service providers, emphasizing investor protection, market integrity, and cross-border regulatory cooperation. The Basel Committee on Banking Supervision has set prudential standards for banks holding crypto assets.

Bergquist sees this global coordination as a positive step and in line with efforts to collaborate across the aisle in the U.S. 

"The election will be helpful. I think some bipartisan support in Congress around crypto bills will stick and survive, and will certainly be helpful in driving adoption," he says.

One key concept in navigating global crypto regulations is jurisdictional equivalence. This involves recognizing that regulatory standards in one country are comparable to those in another, allowing for easier cross-border operations for digital asset firms.

Countries with well-developed crypto regulations, such as Switzerland and Singapore, provide a favorable environment for innovation and talent development. 

The development of central bank digital currency is another area that could significantly impact crypto adoption. Several countries, including the U.S., U.K., and Australia, are exploring the implementation of CBDCs to enhance their digital finance capabilities.

Stablecoins also continue to be a major focus, with regulations evolving to ensure they are backed by appropriate reserves and meet transparency standards. Bergquist notes the dominance of U.S.dollar-denominated stablecoins in the market and their significant influence over capital markets and payment ecosystems.

Crypto Adoption — What’s on the Horizon?

Despite current regulatory challenges, Bergquist remains optimistic about the future of crypto adoption. He points out that younger investors are particularly interested in cryptocurrencies. 

"There's a lot of great data and research out there that shows how individuals, call it under the age of 40, are more excited investing in crypto, are more interested in investing in crypto and believe that crypto has more upside than stocks," he states. “Data like that makes banks really want to participate, but the regulation isn't there and it's not supportive.”

While regulatory clarity presents challenges, it also opens up new opportunities for the crypto industry. Bergquist highlights the potential for crypto to solve real-world problems, particularly in countries with unstable fiat currencies.

"Fiat that is subject to hyperinflation really creates a lot of headwind for a society to be able to advance when their money’s purchasing power is less the next day than the day they got it," he says. “There's a lot of problems that exist that crypto and blockchain have an opportunity to solve.”

In any case, the path to mainstream crypto adoption remains closely intertwined with the development of clear and supportive regulatory frameworks. As Bergquist emphasizes, "It takes execution. Ideas are easy, execution is very difficult.There have been a lot of ideas around what's possible with blockchain technology and crypto. But making it happen takes a very long time."