Turbulence in the crypto industry: How to prepare for strict regulations?

Turbulence in the crypto industry: How to prepare for strict regulations?

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The regulatory pressure on major crypto companies has led to tough times for global players like Binance and Bittrex. As the rules become stricter, Bitget Research chief analyst Ryan Lee explained the implications of regulations and compliance for the wider crypto ecosystem.

From regulatory actions against key players to the prolonged bear market, it’s hard to say the year 2023 went easy on the crypto industry. Governments spent no time following the epic collapse of the United States-based centralized exchange FTX in late 2022 and accelerated their efforts to push stricter regulations for crypto-related businesses. 

While the pressure against centralized crypto exchanges was felt around the world,  the U.S. Securities and Exchange Commission (SEC) made the most headlines numerous times over the year. From U.S.-based companies like Coinbase and Kraken to non-U.S. entities such as Binance, the U.S. SEC had a busy year targeting crypto-related organizations amid global regulatory uncertainty.

As a result, key crypto players started halting some services, narrowing down their operational regions or moving them out of the U.S. jurisdiction. Crypto exchange Binance, for example, announced winding down a large number of services throughout the year. 

It’s hard to say which service was directly hit by regulatory concerns, but 2023 saw Binance shutting down Binance Connect, terminating Russian Ruble deposits, and halting service in several countries from around the globe. Changpeng Zhao, founder and former CEO of Binance, is even rumored to push for shutting down U.S. operations completely.

Another centralized crypto exchange that directly took the heat of regulatory action was Bittrex. Following the bankruptcy filing of Bittrex.US in May, the Liechtenstein-based Bittrex Global announced it’s winding down operations after almost a decade of service.

What do strict regulations mean for the wider crypto ecosystem?

The year 2023 provided the crypto industry with a sneak peek of what will happen when regulators finalize their crypto-related efforts and rules become stricter. As the year draws to a close, several questions remain: How will regulatory actions impact the wider crypto industry?

Despite the heat of regulatory scrutiny being more directly faced by Binance and Bittrex, the entire crypto ecosystem can feel the effects of its radiation. “These events reflect the challenging development and numerous challenges faced by centralized exchanges under the dual impact of a bear market and regulatory pressure,” said Bitget Research Chief Analyst Ryan Lee. From a wider perspective, the regulatory pressure is a net positive for the industry, Lee added: “Regulation and compliance are inevitable trends for the future development of the cryptocurrency industry.”

As the environment gets more regulated and compliant, Lee believes that wider acceptance and adoption of crypto-friendly financial products will follow. Users will benefit from the competition within the crypto industry as well. Crypto exchanges will continue to improve and enhance competition and challenges, he said, which will provide users with more stable services and better experiences. “By focusing on compliance, transparency, and collaboration with regulatory agencies, the crypto industry can strive to achieve a more stable and trustworthy future.”

Second crypto exodus inbound

Looking at the shorter term, though, there will be clear implications of the actions taken by the SEC against crypto companies. Just like how Bitcoin miners faced an exodus following the mining ban in China, the wider crypto industry may see a migration from the United States. Lee predicts that the regulatory uncertainty within the U.S. will push the crypto industry to operate in more crypto-friendly jurisdictions to avoid legal complexities and potential regulatory issues. “This could make non-U.S. jurisdictions, especially in Europe, more attractive due to their clearer or more favorable regulatory environments,” he added.

The non-U.S. jurisdictions that want to become “the next crypto hub” can enhance their competitiveness by providing a more friendly environment for cryptocurrency businesses, attracting talent, investment, and projects, Lee advised. “Regulation has never been an obstacle in the cryptocurrency market; the absence of a clear compliance framework in the regulatory environment poses a real hindrance.”

Tips to get ready for regulations

Governments aside, how can the crypto industry itself befriend regulatory frameworks? Lee stressed that there’s homework for both individuals and institutions in the crypto ecosystem. Crypto companies should start by strengthening their compliance measures with a focus on better anti-money laundering (AML) and know-your-customer (KYC) protocols.

The legal framework of operations should be a top priority, the Bitget Research exec said. “Seek advice from legal experts specializing in cryptocurrency and regulatory compliance,” Lee advised, adding: “Both individuals and businesses need to implement robust risk management strategies to cope with market fluctuations and regulatory uncertainties.

To keep up with the ever-changing regulatory dynamics, organizations need to monitor major markets, while prioritizing operational transparency and ensuring timely reporting and disclosure in accordance with regulatory requirements.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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