Charting a Path Through an Uncertain Crypto Landscape

Cryptocurrencies reached all-time highs in November of 2021 (eclipsing 2.8 Trillion in total market cap) before falling more than 70% in 2022 as the digital asset sector was rocked by a series of failures, bankruptcies, and potentially criminal misconduct. As investors and institutions seek to regroup after a year of unprecedented volatility, they continue to face an uncertain path with little regulation. The enhanced enforcement response only heightens this uncertainty as American and global regulator respond to the FTX collapse.

Looking forward to 2023, firms are compelled to make decisions on how to comply with a complex set of rules around Know Your Customer (KYC), tax and Third-Party Risk Management (TPRM) based on their unique understanding of complex settlements and court filings by a variety of federal, state, and international regulators. This is complicated by ongoing legal uncertainty in the U.S. around fundamental questions such as whether a particular digital asset is a security or a commodity. Tasked with operating in this environment, firms must seek out regulatory certainty wherever they can find it.

The FTX collapse highlighted the risk of operating in a foreign jurisdiction - the Bahamas - with a lax regulatory infrastructure. In the future, investors will likely seek the reassurance of dealing with a licensed company in a jurisdiction (such as the US, EU, or Japan) with robust regulatory reporting and risk management standards to restore trust.

Despite market and regulatory uncertainty, firms should look at automated workflow solutions that address current and future headwinds and help firms to:

• Keep up to date with global reporting changes as they occur.
• Be prepared with the correct market data to make informed, timely decisions.
• Have safeguards similar to those of other asset classes in place.
• Streamline the onboarding process and provide real-time status between account holders, internal teams, and banking partners.
• Reduce time to transaction and increase operational efficiency with automated onboarding.
• Explore ways to offload taxation and AML/KYC and KY3P reporting processes.
• Outsource technology solutions to scale and streamline tax compliance processes.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.