Preparing for Inevitable Changes in Regulations

The US is nearing election day, and its regulatory landscape for digital assets remains ambiguous. Regardless of the winner, 2025 is expected to bring about regulatory changes that investors must be prepared for. A recent report by the World Economic Forum on global approaches to crypto regulation highlights the US's reliance on enforcement over clear policy, hindering growth and innovation, especially when compared to the EU's structured MiCA framework, which provides investors with a roadmap for engagement in the region. The uncertainty surrounding regulations is particularly crucial for decentralized finance (DeFi), where the US's aggressive enforcement strategy has led to a decline in innovation. For instance, the SEC's recent decision to close its probe into ConsenSys without filing charges, although a short-term victory for Ethereum-based DeFi projects, underscores the lack of regulatory consistency. This regulatory uncertainty creates both opportunities and risks, as traditional financial institutions (TradFi) increase their involvement in digital assets. TradFi firms, with their sophisticated regulatory strategies developed over decades of navigating complex compliance environments, are better equipped than smaller crypto-native companies. As major players launch products such as Bitcoin ETFs and tokenized funds, innovators lacking regulatory expertise may be pushed out unless they adapt to emerging frameworks, such as those proposed by the Stablecoin Standard, which offers voluntary requirements for transparency, operational resilience, and reserve backing. This model could provide a path for other innovators to meet compliance expectations and accelerate growth and adoption. Institutional investors must adopt a strategic approach, using a 'regulatory ladder' framework, similar to a fixed-income ladder, to balance risk and opportunity across different asset profiles. With potential regulatory shifts looming on the horizon, regardless of election outcomes, investors should prepare diversified crypto portfolios that include both TradFi and agile innovators backed by thoughtful regulatory strategies. Ultimately, as the WEF report highlights, the US must eventually reconcile its enforcement-first approach to avoid losing its competitiveness to more progressive regulatory regimes in the EU and Asia. Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.