Structural Changes in the Crypto Landscape
The next major shift in the cryptocurrency industry will not arise from a new token or an increase in leverage. Instead, it will come from regulatory frameworks allowing regulated markets to connect globally. Historically, crypto markets have been unbalanced, with liquidity pooling offshore while regulated markets were smaller and confined. As jurisdictions establish rules on custody, asset segregation, market conduct, surveillance, settlement, and operational resilience, some markets are gaining credibility both locally and globally.
Regulation Mature Enough for Collaboration
For the greater part of crypto’s existence, regulation was either too early or inconsistent for jurisdictions to trust each other’s frameworks. Earlier regulations focused on basics like registration and anti-money-laundering measures. Now, regulation delves deeper into market integrity. Key questions include:
- How are client assets held?
- What if a platform fails?
- Who monitors for manipulation?
- How are conflicts managed?
- What standards govern disclosure and continuity?
For example, Hong Kong’s Securities and Futures Commission has developed a strong licensing regime for virtual asset platforms, refining it with custody and market infrastructure guidelines. Dubai’s VARA has activity-specific rulebooks covering exchange services and risk management. By defining standards, jurisdictions provide a clear picture of regulatory approval, allowing other regulators to assess and possibly adopt these standards.
Regulatory Equivalence and Onshore Liquidity
Understanding regulatory equivalence involves examining the crypto world map. Offshore platforms have grown quickly by avoiding national borders and compliance costs. In contrast, regulated markets have historically been isolated, requiring new liquidity pools to be built within national borders. This is changing in places like Hong Kong, where new rules allow for shared order books, reducing fragmentation.
Regulatory equivalence bridges these isolated markets. Compatible jurisdictions can share standards, allowing regulated liquidity to flow freely. This network effect creates a competitive environment against offshore dominance, while keeping market activities within a system with clear rules and protections.
Crypto’s Legibility to Mainstream Capital
Regulatory equivalence is crucial for integrating crypto into the global financial system. Institutional investors need markets built on legal clarity, safeguards, and predictable behavior. A common misconception is that a single global regulator is needed for a global market. Instead, a system based on mutual recognition is more resilient. The goal is not a world regulator, but a model where local authorities, like in Hong Kong or Dubai, maintain control but also whitelist trusted peers.
This creates a decentralized, high-trust network similar to a passport system. Countries write their own laws and supervise their firms but treat trusted peers as extensions of their harbor. This allows domestic investors access to foreign platforms without redundant licensing processes, preventing the concentration of liquidity with opaque offshore entities. By focusing on global connections, regulators create a governable and resilient market ready for institutional engagement.
Ben El-Baz is the managing director of HashKey MENA, leading licensed exchange entities in the Middle East and Europe.