By Edgar Murans
Clear Junction
The "crypto winter" is thawing as lingering skepticism gives way to optimism, but many financial institutions still think of crypto as a dirty word, and a volatile risk obliterating any potential reward. Attitudes need to change—fast. In this article, I'll outline how improving regulatory frameworks for crypto can create the foundation for crypto to enter the financial mainstream.
Bitcoin and other cryptocurrencies have become bywords for volatility and catastrophic market fallouts. The collapse of FTX seemed to exemplify every negative connotation around crypto: dubious asset value, unpredictable price swings, loss of customer funds, and nefarious players obfuscating the truth.
It's no wonder that so many financial institutions remain hyper-cautious about engaging with crypto, a fear heightened by no clear regulatory oversight—until now.
Consumer and business appetite for crypto is growing. Boston Consulting Group predicted nearly 1 billion cryptocurrency users by 2027 (see bit.ly/3zCyljl) and accepted usage of crypto-linked debit cards and other initiatives by the likes of Visa and PayPal indicate market demand is there (see bit.ly/3W3fTHT).
But many financial institutions are missing out on these customers, perceiving crypto as too high risk. This reluctance now looks increasingly misplaced. Why? Because the rapid digitization of the global economy (including the rollout of real-time payments) is spurring demand for faster, more secure ways to pay, across multiple use cases. Thus, we're on the verge of an enormous kickstart of crypto as an approved and trusted way of making payments.
A big part of why crypto winter is thawing is that regulators are now warming up to crypto as legitimate financial assets, following the January 2024 SEC approval of spot Bitcoin ETFs (and likely Ethereum ETFs to follow suit). Now, some European regulators are set to follow the United States' example and legitimize crypto-based ETFs.
This reassures investors that they can engage with crypto as a legitimate investment, and avoid the unregulated crypto exchanges like FTX that damaged confidence in the sector. It's clear that regulatory acceptance will be the catalyst for Bitcoin to become an accepted means of monetary exchange.
Furthermore, the approval of spot Bitcoin ETFs recognizes the inherent differences of blockchain-based instruments from other assets, and why they require more tailored regulatory frameworks in response. With the advent of the EU's MiCA regulatory framework assuring clarity and safeguards for crypto asset buyers, regulators in other markets will learn and shape their own crypto strategies accordingly.
I'm encouraged by the Bank of England’s steps to explore the viability of a digital pound, and other central bank digital currency (CBDC) initiatives rolling out elsewhere. CBDCs as a store of value and means of exchange are as close as possible to fiat without being fiat. They also have the security advantage of being issued by a central government with a fixed value.
Blockchain's transformational benefits are clearly illustrated when moved from abstract concepts and viewed through the lens of real-world applications like cross-border payments, which are hampered by high costs and long settlement timeframes.
Blockchain offers real-time settlement and removes the intermediaries that add to fees and risks. Transparency and trust are built in; every blockchain transaction is traceable and recorded on a shared ledger.
Blockchain holds the potential to fundamentally transform remittance flows to underserved and emerging markets, empowering more financial inclusion and economic development at societal and global levels.
The most likely form of blockchain able to fulfill this potential are stablecoins, pegged to a reserve asset like U.S. dollars, which can act as a bridge between cryptocurrencies and fiat currency.
Stablecoins can work as a safe, secure decentralized means of storing payment and trading value, without the volatility associated with bitcoin and other popular digital currencies. Already stablecoins are producing new payment use cases, with a Visa pilot project sending USDC stablecoins to merchants through the Solana blockchain.
I'm confident further regulatory activity on crypto will legitimize it as a payment instrument, used and trusted in the same way as bank account transfers and payment cards to purchase goods and services.
The chasms that previously divided traditional finance and crypto are being bridged by solid regulatory frameworks, removing confusion and skepticism for institutions and their customers. The safeguards and risk management protocols are being put in place to instill more clarity, confidence and trust in the market.
With that trust to build on, financial and payment players can explore further innovative uses for crypto, and that will drive huge demand for fintech and payments companies with the risk management and compliance capabilities to support them.
Market dynamics, consumer and institutional appetites and regulatory initiatives worldwide all signal that crypto is here to stay. Any responsible financial business that wants to serve a global customer base and gain a competitive edge should include both fiat and crypto in its strategy.
The sooner they embrace crypto and build the infrastructure and solutions needed to serve demand, the faster they'll eliminate the risks and enjoy the rewards of serving a growing global customer base. 
Edgar Murans is the senior business development manager for Clear Junction. Contact him via LinkedIn at linkedin.com/in/edgar-m-a90572101.
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