Why TradFi’s Regulatory Expertise Could be the Missing Piece to Mainstream Crypto Adoption

The crypto market currently enjoys a $2.4 trillion market cap. While this figure may seem small compared to traditional markets such as stocks and gold, it is quite a milestone for an industry that has long operated in a regulatory vacuum.

According to the latest update by crypto regulatory tracker, Atlantic Council, out of the 60 countries that were analyzed, only 33 have accorded digital assets a legal status. The rest have either partially or fully banned the use of cryptocurrencies within their jurisdictions.

Of course, some DeFi natives might argue that regulations are not necessary at all in an ecosystem whose core value is based on eliminating the middlemen and centralized authorities. On the other hand, however, for any consumer market to thrive, history has taught us that oversight is an important part of the process.

A recent report by the Financial Times revealed that digital payment and crypto firms were fined to the tune of $5.8 billion in 2023, a bigger share of which was contributed by the $4.3 billion fine imposed on Binance crypto exchange by U.S. authorities. Traditional financial service providers, on the other hand, only paid $835 million in fines during the same period. 

Although a controversial take, who better to bridge the regulatory expertise gap than traditional institutional firms that are already equipped to navigate financial market frameworks?

In the past few years, several established financial service firms, including the likes of Robinhood and global financial derivatives provider MultiBank have expanded their product suite to include digital asset trading pairs. 

But what’s more noteworthy is that these TradFi firms are leveraging their financial market expertise to introduce secure and regulated crypto trading platforms. 

Bridging the Regulatory Gap in Crypto Adoption 

When Bitcoin’s mainnet went live in January 2009, the traditional financial market was in shambles as a result of the U.S. housing crisis. At the time, there was a strong need for a decentralized form of money that was free of control from the Federal Reserve or other centralized market forces, including banks, which were the main culprits of the housing bubble.

Bitcoin’s peer-to-peer electronic cash system delivered this vision! The caveat? Most of the OGs in the market believed that there was no need for any form of regulation or intervention by traditional institutions, at least until the 2017 bull run. That’s when it became apparent that institutions could be the much-needed fuel for the adoption of digital assets.

Fast forward to 2024, one of the most anticipated developments was the pending approval of a U.S. Bitcoin Spot ETF by the SEC. Arguably, the green light by U.S. authorities has been a game-changer on so many fronts.

Bitcoin Spot ETFs 

As of writing, Bitcoin Spot ETFs in the U.S. have attracted a cumulative inflow of over $16 billion since their debut in January. Grayscale’s formerly GBTC trust, now turned ETF, currently leads the pack of the 11 approved ETFs with an AUM of $24 billion, followed closely by Blackrock’s IBIT at $17.24 billion.

It is also interesting to observe C-suite executives in the traditional finance realm embracing the idea of investing in digital assets. Larry Fink, Blackrock’s CEO, is one of the industry leaders who seems to be particularly optimistic about exposing investors to cryptocurrencies like Bitcoin. According to Fink, BTC could be a good hedge at a time when the world is facing serious macro challenges, not to mention the risk of full-blown wars.

“If you want to hedge hope, Bitcoin is not an instrument for hope. I look at it as a vehicle in which you’re expressing… that you’re more frightened of the world, you’re more frightened [for] your existence.” – Larry Fink. 

Regulated Crypto Trading Platforms 

Traditional financial institutions are also coming in as regulated players with the advantage of having worked with several authorities across the world. This was not the case as recently as 2017 when one could trade on multiple crypto exchanges without completing any form of KYC verification.

While this could be seen as an advantage for those looking to avoid scrutiny, it is also the reason why so many exchanges have gone down with customers’ funds, while others like Binance and Kraken have had to pay hefty fines for their survival.

On the brighter side, however, we’re now seeing more established TradFi players joining the crypto space and launching regulated platforms dedicated to crypto trading. 

A good example of such an exchange is Multibank.io, a subsidiary of MultiBank; this financial derivatives provider enjoys over 14 licenses globally with over 25 offices across the globe. MultiBank’s recent foray into the digital asset space opens up an opportunity for traders and investors to access crypto derivatives with up to 100x leverage on BTC and 50x on altcoins, all within a secure and regulated trading environment.

Conclusion 

The crypto market has evolved a great deal, from the days when Bitcoin was the only digital asset to now where there are over 14,000 cryptocurrencies. But despite the advancements in innovation, regulation has been a lacking factor in giving crypto assets the legitimacy they need for more investors to allocate funds.

The recent developments, however, paint a brighter picture for the future of this industry. For starters, a good number of regulators are now taking up the mantle to set up crypto frameworks. But more importantly, traditional financial institutions are stepping up to fill the expertise in structuring ‘acceptable’ crypto products such as ETFs and trading platforms that adhere to jurisdictional guidelines or laws to avoid confrontation with authorities or tampering with users’ funds.