The emergence of cryptocurrency offered access to a digitalized financial system that’s free of the government’s control. Store-of-value assets like Bitcoin have revolutionized the investment market and allowed investors to diversify their portfolios with the latest tech projects based on crypto, as Ethereum, Cardano, or Polkadot followed the course of Bitcoin.

As innovative as they are, cryptocurrencies are not easy to introduce in the real world because they don’t fit the actual regulatory framework. That’s why buying crypto still isn’t that easy, but you can check out the Bitcoin price chart or any crypto data to improve your strategy. Not all exchanges are allowed to operate in some parts of the world, and the lack of digital literacy contributes to a low-speed adoption of the crypto ecosystem.

Hence, to ensure worldwide adoption, cryptocurrencies must be regulated by official authorities to ensure safety and reliance. So, here’s what investors should expect this year and beyond.

US stablecoin issuers to be regulated

Unlike cryptocurrencies, stablecoins are tokens pegged to another currency, usually an official one, such as the US dollar or commodities like gold. There are three main types of stablecoins:

• Fiat-based stablecoins are backed by official fiat money that offers stability and security. An example of such a coin is Tether USDT, and it’s also one of the biggest cryptocurrencies by market capitalization;
• Crypto-based stablecoins have their value held in reserves. For instance, the DAI token of MakerDAO is backed by Ethereum but pegged to the US dollar;
• Algorithmic stablecoins are based on a computer algorithm that controls supply, and they’re similar to central banks;

Hence, stablecoins are closer to the real-world financial system, so the US government plans to regulate some of them. However, stablecoins might be affected by the EU Markets in Crypto-Asset (MiCA) regulation, which will introduce harsher implementations for stablecoin issuers intended to ensure transparency for the end consumer. It may be possible for money laundering and evasion to be assessed this year, especially towards crypto exchanges.

More ETFs to be accepted

Crypto exchange-traded funds were the craze of 2023, as numerous companies have been presenting their projects for some years now, and only a few have been pending approval by the SEC. But 2024 might be more important for BTC and ETH ETFs because they’ve increased in value as many investors have become interested in them.

These ETFs bring many more benefits to a portfolio than any other digital assets because they’re not linked with the cryptocurrency directly but rather reflect its value without exposing the user to volatility risks. The overall positive sentiment over ETFs has driven the market to boom during the end of 2023, so 2024 might finally deal with their regulation.

Still, it might be possible that only BTC ETFs will get their recognition because authorities still don’t trust Ethereum or any of its related assets. That’s because Bitcoin is regarded as safer, despite its high volatility, while Ethereum is more of a developer tool.

DeFi ecosystems to become closer to regulation

Decentralized Finance provides users with the power of decentralization and peer-to-peer transactions. The ecosystem involves cryptocurrencies, blockchain, and software, eliminating the need for intermediaries. This environment still has a lot to introduce to become 100% reliable, which is why the SEC and other similar authorities aimed for enforcement actions against these projects. Indeed, in the case of the DeFi mixer, Tornado Cash, where money laundering was facilitated, we can state that the newness of the ecosystem exposes it to such risks.

However, its potential is significant, which is why DeFi might be on terms of regulation. The International Organization of Securities Commissions already provided a DeFi policy for countries to handle the use of these digital tools, so we should expect some steps ahead for DeFi in the future.

Better oversight for AI and crypto

Artificial Intelligence in crypto is on the rise, as it can enhance decentralization through automation. The hype of AI in 2023 has drawn a lot of attention to the risks of such a service, from taking people’s jobs to being a tool for illicit behavior. However, the potential for AI in crypto could help solve many of its existing problems. For instance, AI can be used to analyze market trends and identify potential threats for investors to assess and change their investing strategy. It could help them mitigate volatility, which would solve crypto’s biggest challenge.

The EU has already introduced the AI Act, which provides a regulatory framework for companies and regular users to consider before leveraging these two technologies. Besides, it may be possible for other areas to become interested in AI from this perspective and design appropriate policies.

Exchange lawsuits might continue

A few crypto exchanges went through serious lawsuits from the SEC in 2023 as the authority considers them to be unreliable to the public. Coinbase and Kraken are some of the biggest crypto exchanges on the market, and they’ve been dragged by the SEC based on their failure to register their assets. Indeed, the SEC announced months before that all exchanges must abide by their protocols to continue operating. But even if their guidelines weren’t mostly clear, they’ve rapidly gone into lawsuits with these companies.

It may be possible for them to continue in 2024, too, since most haven’t even reached the bottom of the problem. Although the SEC has employed a forceful method of dealing with crypto, the market is indeed prone to illegal securities due to decentralization. However, most of these blockchains and exchanges should better prepare their validators and nodes to safeguard the ecosystems. At the same time, the government could offer education courses for users to avoid being victims of hackers.

Conclusion

The cryptocurrency market has been on the rise significantly in the past years, but this coverage exposed it to several challenges that now need regulation to protect users. Hence, 2024 may be the year when some of these issues will be tackled, such as money laundering, so investors and developers can make use of these tools and tokens. Still, many of the upcoming regulations might hinder investing more than before, so people should stay updated with the latest laws.