As cryptocurrency continues to evolve, the role of institutions becomes increasingly vital to shaping its future. Financial institutions, governments, and regulatory organizations are crucial for strengthening the relationship between TradFi and DeFi. This relationship will ensure the fostering of innovation, remove the barriers to mainstream acceptance, strengthen infrastructure development, and better innovation and regulation. This article explores these four main areas in which institutions will impact cryptocurrency, and potentially mold its future.
Mainstream acceptance
Cryptocurrency adoption is increasing across the globe. In Europe, there are no countries in the EU that haven’t seen an increase in crypto adoption since 2021. In the US, a security.org report showed that 40% of American adults own crypto in 2024, up 10% on the previous year. These two simple data points show that acceptance and adoption of cryptocurrency are becoming more mainstream. However, public skepticism remains a legitimate barrier to wider crypto adoption. That’s something that established financial institutions can help with, by lending credibility to digital currencies and positively engaging with the industry. With traditional banks moving into the crypto space themselves, they also bring their customers, who may otherwise have not felt the desire or knowledge to do so.
Infrastructure development
Various institutions possess the resources and expertise to develop advanced and secure infrastructure for cryptocurrency transactions to exist within. This includes secure reliable exchanges and payment systems essential for mainstream use. Institutional interest has also created a new sprawling ecosystem of providers offering services to institutional clients. Banks are bringing their brands, clients, and infrastructure development into the crypto space, expanding the ecosystem beyond just the two TradFi and DeFi buckets. Institutions operating on a global scale are particularly helpful in facilitating the integration of cryptocurrencies into the international financial system. This enhances cross-border transactions, reduces remittance costs, and promotes financial inclusion worldwide. It also helps to stitch different regulatory bodies together across international borders, something that ensures a global reach for crypto.
Innovation and expansion
Financial institutions are actively becoming more involved in crypto, forming partnerships, working on technology, and innovating their products. The integration of cryptocurrencies into TradFi will lead to more of these opportunities, especially in areas such as crypto-based EFTs, NFTs tokens, or loans. These products can attract a wider range of investors, from retail to institutional, and an environment that allows crypto to thrive and innovate. The innovation from the cryptocurrency space also helps to feed the expansion of the financial institutions themselves, as they attempt to modernize and capture customers interested in the blockchain and crypto.
Regulation
Governments and regulatory bodies are needed to provide a framework within which crypto can operate safely and efficiently. While the decentralized nature of cryptocurrencies is one of their key appeals, a level of regulation is necessary to prevent misuse and protect investors. But these cannot be created in a vacuum. It is also up to the crypto industry to tell financial institutions what their customers want and need, and show them what helps to advance, rather than stifle, the space.
- Clarity. Clear and consistent regulatory guidelines can help to eliminate uncertainties. When businesses and investors understand the regulatory landscape and the legal protections, they are more likely to engage with crypto.
- Consumer protection. Regulations can help protect consumers from fraud, theft, and other risks. Existing financial institutions require strict and mandatory regulations, such as anti-money laundering (AML) checks, and know-your-customer (KYC) rules. These are issues that for instance the European Union’s Markets in Crypto Assets Regulation (MiCA) is attempting to enforce in the EU.
- Market Stability. By monitoring and regulating cryptocurrency markets, governments can help prevent extreme volatility and market manipulation.
What should the future look like?
To sum up, a reciprocal and united relationship between existing institutions and decentralized innovators will be essential for the future of cryptocurrency. While institutions can provide the necessary stability and infrastructure, the space's inherent flexibility and innovation will drive technologies into the future. But it is not just up to institutions to be the sole regulators, and for the cryptocurrencies to be the innovators. Both need to work together across all sorts of global problems and opportunities that the financial system will face. Institutions will play a vital role in the future of crypto. Still, it is up to both sides to work on collaboratively developing scalable solutions to address limitations, user pain points, and wider financial inclusion.
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