The financial industry has been wading through troubled waters since the start of the pandemic, and its struggle has been exacerbated by the constant rise and fall of cryptocurrency, the market's most volatile asset. In 2024, crypto and other burgeoning digital assets are experiencing rapid evolution, driven by increasing regulatory scrutiny and growing institutional adoption. This dynamic environment is marked by a steady stream of active litigation, with more disputes anticipated as the industry continues to mature.
To understand where these conflicts may arise as we head deeper into 2024, we asked Dr. Boris Richard, a cryptocurrency and finance expert with more than 25 years of industry experience, for his thoughts on how he sees the financial technology landscape shifting regarding regulatory scrutiny and potential litigation risks.
WIT: How have regulatory changes impacted the growth and development of the fintech and crypto space in 2024?
Dr. Richard: There have been no major legislative bills related to cryptocurrency enacted by the US Congress thus far this year. FIT21, formally known as the Financial Innovation and Technology for the 21st Century Act, passed in the US House with strong democratic support, but it will face an uphill battle in the Senate. The uncertainty about the legal status of most tokens, as well as the continued hostile stance by the SEC towards cryptos and trading platforms, remains a dark cloud in the US.
On the bright side, the approval of 11 spot Bitcoin (BTC) ETF applications by the SEC in January has increased crypto valuations significantly since the beginning of this year, with BTC approaching its all-time high, which was last achieved in the Fall of 2021. Approval of spot ETH ETFs by the SEC at the end of May boosted ETH price as well. Overall, institutional and retail adoption of major cryptocurrencies such as BTC and ETH remains on a clear, upward trajectory.
WIT: What emerging trends are shaping the fintech and crypto landscape this year, and how are they expected to evolve in the near future?
Dr. Richard: There are three main trends that I see shaping the industry in 2024:
- AI: I see the development of AI agents (consumer-facing apps) and their deployment on-chain along with the use of blockchain data to train AI and ML models to be particularly impactful. Further, the use of AI to detect illicit funds flow or market manipulation and embedding AI logic into smart contracts (for example, ICP protocol) will contribute to the market's evolution.
- Further push for scalability: On this front, two elements at play will likely contribute to shifts in the fintech space: (A) the integration of the Lightening Network into BTC payment solutions and (B) the advent of Layer 3 solutions for smart-contract based networks. Layer 3 encompasses highly specialized blockchains tailored to serve specific industries, applications, or business needs like specialized finance dApps, KYC/digital identity, blockchain gaming, etc.
- Tokenization of real-world assets (RWAs): Regarding RWAs, there has been a lot of talk and effort around the implementation of this process, but progress is slow as there are no unified standards or architecture. The liquidity of security tokens is still dependent on the liquidity of the underlying RWA. Check out Ondo Finance to learn more about their work on this front.
WIT: As institutional interest in cryptocurrencies continues to grow, where do you see opportunities and challenges for mainstream adoption and integration of digital assets into traditional financial systems?
Dr. Richard: With regard to opportunities in the industry, I see five distinct areas for improvement:
- TradFi firms moving into the digital asset space by acquiring the technology and customer base of smaller, but established crypto players. For example, we saw this in Robinhood's recent purchase of Bitstamp
- The use of technology-neutral risk weighting and custody rules for digital assets to involve traditional players like banks
- The creation of institutional-grade security solutions for wallets, DEFI protocols, and crypto custody to involve traditional asset managers
- Collaboration between TradFi and crypto natives in the areas of chain interoperability, infrastructure development, tokenization, and stablecoin issuance
- The development of smart contract-based compliance KYC/AML solutions, blockchain analytics and monitoring, and market integrity surveillance mechanisms for crypto markets
Conversely, I have identified five areas that may present challenges in the industry:
- The lack of regulatory clarity and the lasting, hostile stance of the SEC
- The ongoing criminalization of blockchain privacy-related developer activity by the DOJ under the banners of AML/CFT compliance, IEEPA, etc.
- Continued high volatility of crypto valuations
- Slow progress in developing consumer-facing economic uses for most tokens
- Generally, most cryptos are still just a speculative investment instrument
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