By Dima Kats, founder and chief executive officer, Clear Junction

‘Crypto Winter’ may be thawing, but financial institutions still think of crypto as a dirty word, and a live example of volatile risk obfuscating any potential reward. It’s time for attitudes to change. In this article, I’ll outline how emerging regulatory clarity around crypto will be the springboard for crypto to enter the financial mainstream.

Bitcoin and other cryptocurrencies have become bywords for volatility and calamitous market fallouts. After the FTX debacle, it’s no wonder financial institutions are hyper-nervous and wary about engaging with crypto in any form. As a speculative asset, crypto is wildly unpredictable in its price swings. Unregulated exchanges have exploited a lack of regulatory oversight to swindle investors.

Whatever you think about crypto, consumer appetite is growing. Boston Consulting Group predicts nearly  one billion cryptocurrency users by 2027, and growing usage of crypto-linked debit cards and other initiatives by the likes of Visa and PayPal show that the demand is clearly there.

But still today, many financial institutions are hesitant to adopt the opportunity to serve these customers and enter markets, perceiving crypto as too high risk to even engage with. This reticence will look increasingly misplaced as the rapid digitisation of the global economy (including the rollout of real-time payment systems) fuels demand for faster and more secure ways to pay.

Here’s why I think we’re about to see a momentous kickstart of crypto as an accepted and trusted way of making payments.

Regulators open the door for mainstream crypto acceptance

As ‘Crypto Winter’ thaws, regulators are now warming up to digital currencies as legitimate assets. In the US, cryptocurrency has taken one step closer to entering the mainstream financial ecosystem, following the January 2024 SEC approval of spot Bitcoin ETFs. This regulatory acceptance gives retail and institutional investors a way to stake a claim in crypto without having to do business with loosely regulated crypto exchanges like FTX – and it could prove to be the catalyst for Bitcoin to become an accepted means of monetary exchange.

Furthermore, the approval of spot Bitcoin ETFs reflects the inherent differences of blockchain-based instruments from other assets, and why it needs a more tailored regulatory framework that recognises its distinct characteristics. In tandem with the advent of the EU’s MiCA regulatory framework giving clarity and safeguards for crypto asset buyers, we can expect regulators in other markets to watch and learn from these approaches and shape their own crypto strategies accordingly.

I’m heartened by the proactive steps being made by the Bank of England to explore the viability of a ‘digital pound’, and other central bank digital currency (CBDC) initiatives ramping up elsewhere. CBDCs as a store of value and means of exchange are as close to fiat without being fiat, and they come with the inherent security of being issued by a central government with a fixed value.

The benefits of blockchain technology are clearer now than just a few years ago, especially when viewed through the lens of a payment instrument. Blockchain technology has the potential to transform payments, especially cross-border payments, which currently 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, because every blockchain transaction is recorded on a shared ledger and can be traced. I especially believe in blockchain’s potential to transform remittance flows to underserved and emerging markets, empowering more financial inclusion and economic development.

That’s why I believe stablecoins pegged to a reserve asset like US dollars can become a bridge between cryptocurrencies and fiat currency, working as a safe, secure decentralised means of storing payment and trading value, and without the volatility. And we’re already seeing stablecoins produce new payment use cases, with the news of a Visa pilot project sending USDC stablecoins to merchants through the Solana blockchain.

I’m confident we will see further regulatory activity on crypto with a view to legitimising it as a payment instrument, used and trusted in the same way as bank account transfers and payment cards to purchase goods and services.

Don’t fear regulation – embrace it as an opportunity to innovate

More regulatory engagement with crypto can only be a good thing, for several reasons. The regulatory gap that previously existed between traditional finance and crypto was the cause of much confusion and scepticism, particularly from institutions that steadfastly refused to engage with crypto, much to the frustration of their customers.

Now, that gap is being bridged by solid regulatory structures and risk management safeguards that will instil more clarity and confidence in the market. That in turn will engender trust, and it will encourage financial and payment players to explore even more innovative use cases for crypto, such as driving financial inclusion. And that means there will be a surge in demand for fintech and payments companies with the risk management and compliance capabilities to support regulated financial institutions in this new era.

My key takeaway for you is this: the market dynamics, consumer and institution sentiment and regulatory activity worldwide all signpost that crypto is here to stay. Any responsible financial business that seeks to serve a global customer base and stay competitive will have no choice but to include both fiat and crypto in its strategy, whether it likes crypto or not.

So, it’s time to embrace crypto in a responsible way and build the proper infrastructures needed to serve a growing global market of consumers and businesses.

Related opinion: does Bitcoin halving count as monetary policy?

Image: Clear Junction

Guest Editorial
This article was produced specially for Fintech Intel by an expert guest contributor.