Aside from liquidity, what do institutions add to cryptocurrencies? What is its added value specifically? It is a useful question to ponder, because there is little consensus about the meaning of deeper institutional engagement for an industry riven by contradictions.
The long wait for Bitcoin ETF approval, giving pensions and funds exposure to BTC, could be a positive catalyst for industry growth. But by focusing on price action, observers miss the real benefit of widespread institutional adoption. Perhaps the greatest benefit of deepening institutional adoption is the regulatory certainty that such adoption heralds.
Tax and compliance
There are a number of areas where institutional engagement forces regulators to provide direct answers. The most important of which are tax and compliance. What trades can a company legally undertake, how should they be disclosed on its balance sheet, and what steps should it take to report these activities?
Related: Bitcoin ETFs: A $600 Billion Turning Point for Cryptocurrencies
Determining what constitutes a taxable event in cryptocurrencies depends on your control. While US traders are required to calculate profit and loss (PnL) on every trade on a decentralized exchange (DEX), trading position, and on-chain event, other countries take a less stringent approach, while a few don’t even bother with taxes. Absolutely.
#Bitcoin ETFs will be delayed until the final deadline
The SEC is trying to show that it is not concerned and is trying to postpone the dates until the final deadline, even though both the SEC and BlackRock know the inevitable outcome.
BlackRock’s ETF should be the first… pic.twitter.com/6ZkfUf9WPR
– Cups (@thescalpingpro) September 29, 2023
No matter where you reside, determining your obligations when buying, selling, and storing digital assets can be a headache. But it could be worse than that: imagine the risks for companies, whose public accounts must be audited, and which typically require permission to even include Bitcoin (BTC) on their balance sheet.
There are good reasons why organizations have higher standards in terms of compliance, disclosure, reporting and taxation than consumers. It’s the main reason it takes so long for serious institutional adoption to emerge. But as the influx of financial firms gaining a foothold in the field became an influx, the entourage of lawyers and lobbyists began to realize profits. When BlackRock starts banging the Bitcoin ETF drum, the SEC should sit up and take notice.
The court’s ruling in favor of Grayscale v. SEC on August 29 showed that power institutions can mobilize to force regulators to renegotiate. The precedent set by this appeal decision will increase institutions’ confidence in their ability to reshape legislation to their advantage.
Search for organizational clarity
For those already in the game – sole traders, trading firms, family funds, venture capitalists – greater institutional involvement can only be a good thing. When the largest organizations decide they want to join in, it forces organizers to play ball. Not every provision pushed through the statute books will help the industry — some will be meaningless — but taken together they provide something that has been missing for years: clarity.
Is Bitcoin safe? What about Ether (ETH) or Solana (SOL)? The answer, nowadays, depends on who you ask. Some agencies seem intent on declaring everything but Bitcoin a security; Others take a more measured approach, focusing their implementation efforts on token sales and more outrageous shillings.
Related: 10 Years Later, There’s Still No Bitcoin ETF — But Who Cares?
Institutions cannot trade assets that fall in a regulatory restricted area: they need black and white, not shades of grey. Their increased market participation will certainly provide clearer answers regarding the classification of cryptocurrencies, which will benefit the entire industry.
Additionally, greater institutional involvement legitimizes digital assets by making them less foreign to those charged with regulating them. Cryptocurrency opponents cannot justifiably claim that the industry is a hotbed of money laundering and trading when the most active participants are the world’s leading trading firms.
Signs of institutional adoption
Today, companies and governments are moving forward with blockchain-based initiatives such as CBDC pilot projects. In Asia alone, Hong Kong and the Bank of Japan are exploring digital currency-related programmes.
Meanwhile, banks from the United States to Europe offer cryptocurrency custody and trading services to their clients. And in August, Europe’s first bitcoin ETF listed in Amsterdam, proving that institutional willpower eventually gets things done.
Regulatory bodies and institutional players are still catching up in terms of expertise of those who helped build the industry from the ground up in its early days through hands-on involvement. No one has complete mastery. But as the tide rises and all ships are lifted, greater institutional involvement would benefit all players, from the most modest farms to the richest whales. Rather than assuming that any one group has it all figured out, open and collaborative dialogue is more likely to lead to positive outcomes. Regulators, institutions and early adopters each offer unique insights.
You don’t have to thank them, but large organizations are a net positive for the industry. Bigger players produce better rules, and better results for everyone.
This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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