Introduction
While the cryptocurrency industry is still relatively young, its adoption by various economic sectors and the evolution of the technology itself is growing, along with the tokenization of assets, AI-powered smart contracts, and decentralized finance (DeFi) becoming more accessible to customers. Yet, with all the hype and opportunity surrounding crypto, concerns over security, volatility, and regulatory scrutiny are increasing as well. Companies in every sector are looking at the use of crypto to gain an advantage. Even the gaming industry has entered the crypto space with bridging services offering “Play-to-Earn” games. Anonymity is a key feature in both the risk and success of cryptocurrency. The concept of “Know Your Customer” on centralized platforms is still required, but anonymity attracts some participants to DeFi platforms who want to transact on a peer-to-peer level without a third party. Anonymity is also prompting criminals to use virtual currencies to conduct illicit activities and conceal their profits. Other concerns still looming for governments include crypto asset company bankruptcies and the 2022 failure of the FTX crypto exchange. In the US, with the new Trump administration’s pro-crypto position, there will likely be a shift from the previously restrictive policies which the Securities & Exchange Commission had been enforcing. Many are hoping for a regulatory reset as well as more clearly defined regulation that will spur innovation and allow companies to blossom. The EU has moved farther along in regulating crypto, enacting regulations on the transfer of crypto assets in an effort to deter money-laundering. The EU’s Markets in Crypto-Assets (MiCA) law requires any company issuing or trading crypto to obtain a license. Starting in 2026, MiCA will also require crypto asset service providers to collect information about the sender and beneficiary of transfers. The UK requires any company offering cryptocurrency to obtain authorization from the nation’s Financial Conduct Authority. China has banned cryptocurrency trading and mining outright, while both Japan and Canada require crypto companies to register with their governments and abide by anti-money laundering laws. With all that said, risk and legal uncertainties abound since crypto is classified differently depending on the regulatory agency.
The Rise of Crypto & Digital Assets: Risks
- Increasing investigation by regulators into potential fraud, based on complaints received by various agencies around the globe
- Environmental scrutiny over the massive energy usage of crypto mining
- Market volatility after the halving of bitcoin in 2024, which can reduce the block reward by 50%, lower the supply of bitcoin, and result in a price increase (the next halving occurs in 2028)
- Sanctioned countries using crypto currencies to circumvent Western sanctions – for example:
- Russia
- Iran
- North Korea
- Venezuela
- Manipulation of tokens resulting in the collapse of coin value – for example:
- Terra LUNA case – saw a loss of more than USD 40 billion in one day
- Cryptocurrency being used as payment for criminal activity and to conceal illegal financial activity – for example, often used for payment in:
- Ransomware cases
- Money laundering cases
- Terrorist financing
The Rise of Crypto & Digital Assets: Opportunities
- The adoption of crypto among the gaming and entertainment industry
- Increasing use of crypto ledgers and blockchain technology to itemize movements through various industry supply chains is improving:
- Traceability
- Transparency
- Efficiency
- Speed
- Security
- Investment in compliance systems and processes because of greater regulatory scrutiny to come
- Educational programs on crypto for consumers translates into greater investment in crypto assets
- Companies that can investigate and trace the anonymous controllers of wallets may see growing engagement
- Use of crypto platforms as a safety net to store personal identity information of people displaced by war and similar conflicts
Supporting Statistics
