Since 2016, being then a law student, I have been interested in the subject of crypto-currencies and their development. The technology and the objectives were impressive! I started reading more scientific papers about it, which were limited at the time and mostly American made. Cryptocurrency regulation in the United States, Switzerland, and Singapore has become a pioneer in the industry. But generally it was the Wild West market at that time with a lot of uncertainty.
Today, I lead the Fintech department of the international law firm SBSB Fintech Lawyers. From my own experience, I can say that the era of the “Wild West” is over. Regulators around the world have realized that if this market is not regulated, it will begin to threaten their financial system at some point. And some regulators realized they could profit from their regulations. So I want to make four predictions based on my experience of what we will see in 2023-2024.
First, the increased regulation of crypto companies around the world. I expect this trend to continue in 2023-2024 with increased strength. There are specific prerequisites. For example, Europe will apply the regulation note MiCA – Markets in Crypto-Assets.
The Crypto-Asset Markets Regulation focuses on specific categories of crypto-assets currently outside the scope of existing rules. Moreover, it establishes a unified approach to regulate all crypto projects in the EU region. Additionally, we are awaiting new laws from states like Hong Kong, Panama, Seychelles and others, where crypto projects have previously fled regulation. The massive implementation of the CBDC by various countries will also accelerate this process.
Second, there will be a lot of crypto litigation in 2023-2024. Law enforcement activities will be noticeable. Proof of this is the latest case with Tornado Cash, where the areas of responsibility expand considerably. Tornado Cash was a decentralized crypto-mixer with no clear beneficiary. The service is accused of being a cryptocurrency mixing service allegedly used to launder stolen funds linked to powerful hacks. OFAC’s most recent Virtual Currency Guidelines stated that each type of business and all others that interact with the crypto industry “are encouraged to develop, implement, and regularly update a Tailored, risk-based sanctions compliance. These compliance programs should generally include a list of sanctions, geographic selection and other appropriate measures as determined by the company’s unique risk profile.” Tornado Cash violated the rules of to be a decentralized project, so it is assumed that in 2023-2024 there will be a doctrine that law enforcement can sue even simply for developing software if there is the slightest suspicion that the purpose of this software is to break regulations.And this is a warning to many decentralized platforms that still adhere to anonymity standards.
Third, 2023-2024 are the years of the fight against anonymity. This will accelerate with the full implementation of the CBDC. Unfortunately, it all comes down to the fact that anonymity = a crime. I suspect it may even be formalized into legal doctrine over time.
Fourthly, the technological development of the DEFI market, NFT, the implementation of new solutions in the field of AML/KYC, and cyber security give us a reason to say that we are on the threshold of a new era of crypto projects. In 2023-2024 we will most likely see an even more perfect DEFI market, updated DEXs and NFT markets. But the most important thing is to establish a deep connection with the banking sector. We will see new centralized, progressive and technologically advanced exchanges that will be classified as crypto banks. Classic Fintech projects that do not implement cryptocurrency on their platform will not survive the competition. Therefore, it is likely that in 2023-2024 we will see many mergers and acquisitions in the areas of classic Fintech and cryptocurrency. The crypto-industry giants could well become the crypto-banking giants and expand their market dozens of times.
To sum up, the trend will look like this. The objective of the regulator will be to crush or lead the market. The goal of the big players in the crypto market is to stay on top and adapt to new regulator requirements with maximum benefit for themselves. Innovation and start-up projects will aim to find solutions to meet society’s demand for privacy and anonymity.