Crypto rising: Regulatory and policy implications

10.03.2025

Advocates of digital money, such as cryptocurrencies, have been pushing hard to play a pivotal role in how the global economy works. Reaching this goal has been challenging. High-profile failures of cryptocurrency platforms like FTX and Terra Luna (an algorithmic stablecoin that collapsed), coupled with stricter regulations from governments worldwide, have slowed progress.

Still, a new sense of optimism is sweeping through the crypto world, fueled by the results of the recent elections in the United States. President Donald Trump has promised to make America a leader in digital currency. Not only has he started fulfilling his early campaign promises, he has also taken steps to appoint crypto-friendly leaders across key federal agencies. So, does this indicate that the difficult period for crypto – often called the crypto winter – is finally over? Or will it lead to an era of unchecked risk-taking behavior?

The current crypto resurgence

The new Trump administration, along with a Republican majority in both the House and Senate, has the potential to provide much-needed clarity on the market structure of digital assets. President Trump recently signed an executive order to strengthen America’s leadership in digital financial technology. This order establishes the position of the country’s first crypto and artificial intelligence czar – filled by David Sacks – and calls for forming a presidential working group. This group will bring together key stakeholders from various government agencies and representatives from the private sector. It has been tasked with advising the president on what a well-crafted, pro-innovation policy should include to maintain U.S. leadership, enhance economic competitiveness and ensure national security in the face of rapidly advancing technologies.

Mr. Sacks immediately set to work on his new mandate. On the very day the bipartisan stablecoin bill known as the GENIUS Act was unveiled, he led a press conference alongside key members of Congress, signaling the start of a new era in the industry.

The crypto market has reacted positively to these developments. Bitcoin’s price soared to unprecedented heights, crossing $100,000 in December. Meanwhile, the market capitalization of stablecoins (digital coins tied to real money or assets like the dollar and gold) exceeded $200 billion by January, up over 45 percent year-on-year.

Institutional adoption has also increased, fueled by the potential for legal and regulatory clarity. Last year, several leading Wall Street money managers began experimenting with digital versions of investment funds. This suggests that we might be entering a time when the broad adoption of cryptocurrencies could gain significant traction and popularity.

Global acceptance of cryptocurrencies

This growing momentum is not confined to the U.S. Europe has introduced new regulations for crypto assets. Hong Kong, aiming to become a regional hub for digital assets, is implementing new rules for cryptocurrencies and stablecoins. Singapore offers straightforward laws and tax incentives, attracting companies like Binance. Brazil and several other countries are also getting involved, including the United Arab Emirates, which has fast become a leading financial and technology hub across the Middle East.

The era in which cryptocurrency could operate outside of regulatory frameworks is over. Although some regulations are overly complex, countries are now competing to attract crypto developers, investors and firms. However, if global rules for the cryptocurrency market are not harmonized, there is a significant risk that the emerging “internet of value” could become fragmented and siloed, in the same way that the internet is better than an intranet or an extranet. To achieve this alignment, leadership from the U.S. is vital.

Facts & figures: What is the internet of value?

The internet of value refers to a concept in which digital assets – such as money, stocks, intellectual property or even data – can be transferred over the internet with ease, speed and security. The goal is to facilitate peer-to-peer transactions that are instantaneous and cost-effective without the need to depend on intermediaries to verify or finalize the exchange. Technologies like blockchain and cryptocurrencies play a crucial role in this framework, enabling digitization, tracking and securing the transfer of value without centralized oversight.

Yet, America’s broader economic policies may complicate its ability to lead as international tensions rise. Countries worldwide are facing the repercussions of the “America First” economic agenda, which has led to trade tensions between the U.S. and several other nations. Meanwhile, domestically, America has unfinished business at the federal level and a mix of state interests and regulations regarding cryptocurrencies.

Regulatory fragmentation in the U.S.

The U.S. is entangled in a regulatory tug-of-war over cryptocurrency policies. A fragmented landscape of markets and banking overseers has left agencies either vying for control or stepping back entirely. The Securities and Exchange Commission, Commodity Futures Trading Commission and state-level regulators frequently pursue conflicting goals, creating confusion for crypto firms and investors alike.

This patchwork approach has real consequences. Banks open to servicing the crypto sector face a double jeopardy: Competitive pressures push them to innovate, while compliance challenges force caution. Meanwhile, the unresolved tension between state and federal authority – particularly in banking and payments – has historically stalled critical stablecoin legislation more than any inherent risks in the crypto market. National bank policies are shifting, but the lack of clarity slows progress. Yet, cryptocurrency has thrived, not because of U.S. policies but despite them. Its appeal lies in offering a free, private alternative to access to money and financial services – one that does not take bank holidays. The Trump administration and Congress could bring about a shift in this dynamic.

Nevertheless, the economic and technological policies may be changing too slowly to keep pace with innovation. The relatively low-cost Chinese AI startup DeepSeek’s impact on U.S. technology giants is a case in point. U.S. tech stocks lost nearly $2 trillion in market value in January after DeepSeek’s latest AI model rose to the top of the Apple app store. Sitting back and watching similar upheavals in areas such as payments, capital markets and even crypto markets is not a viable national strategy for staying ahead globally.

Many central banks worldwide are creating digital versions of their currencies. According to the Atlantic Council’s Geoeconomics Center, more than 134 central banks, which make up 98 percent of global gross domestic product, are involved in this effort. However, President Trump’s executive order on digital financial technology stated that Central Bank Digital Currencies (CBDCs) “threaten the stability of the financial system, individual privacy, and the sovereignty of the United States.” He stated that the creation, distribution and use of a CBDC in the U.S. would be strictly prohibited, positioning the regulation of today’s generation of dollar-denominated stablecoins as the urgent national priority for the U.S. to win the digital currency race.

Opposition to CBDCs

Political opposition to a U.S. CBDC marked the first crypto-related issue to spark a fierce political backlash ahead of the 2024 electoral cycle. Even at the state level and in Congress, bills were proposed to ban a U.S. CBDC due to concerns about the invasion of financial privacy and the more insidious long-term risks of imposing morality or conducting a taxpayer-funded science experiment with money.

Facts & figures: Why might those who favor cryptocurrencies be against CBDCs?

Supporters of cryptocurrencies raise concerns about privacy regarding Central Bank Digital Currencies (CBDCs). Since a CBDC would leave a digital trace, it would lack the anonymity that cash or cryptocurrency provides. Integrated features in the currency would pinpoint users, allowing governments to track every transaction, even down to something as small as buying a cup of coffee. Many people, however, expect a certain level of privacy in their financial exchanges. Cryptocurrencies are built on decentralized networks – nobody owns or controls them, and they rely on a community of users to validate transactions. CBDCs, on the other hand, are issued and managed by central banks, meaning they are fully centralized. Crypto enthusiasts see this as a step backward, giving governments and banks more of the same power they already have, just with a digital facelift.

Even the long-awaited launch of the Fed’s domestic fast-payments system, FedNow, received a lukewarm and often conspiratorial response, leading to its slow adoption among banks. With the U.S. effectively stepping away from public-sector digital money experiments, there is a growing urgency for digital dollars – previously referred to as payment stablecoins in legislative proposals – to come under U.S. regulatory oversight. The GENIUS Act, along with two other recently introduced bills, aims to underscore the growing emphasis in Washington on stablecoin legislation. This reflects a clear shift in policy priorities within the government.

Businesses are increasingly recognizing the usefulness of stablecoins not only for crypto trading but also for everyday use. A prime example is Nubank, a Brazil-based fintech firm that has made USDC (a stablecoin pegged to the dollar issued by Circle, the author’s employer) available to its 100 million customers. This positions USDC not just as a trading token but as a reliable dollar-denominated store of value.

Scenarios

Likely: More regulations that support dollar-backed stablecoins

Fundamentally, CBDCs are domestic payment-system innovations. However, even when meticulously designed, they tend to function primarily as localized solutions rather than universally portable forms of digital currency.

This limitation arises from their structure. CBDCs establish a closed network – an “intranet” of money – connected to a single nation’s economy. While they can enhance domestic efficiency and reduce transaction costs, they lack the flexibility and interoperability required for truly global digital currencies. In contrast, intra-bank cross-border settlement systems can be seen as an “extranet.” These systems facilitate payments between banks across different jurisdictions, yet they still operate within a limited framework.

The current landscape of stablecoins reflects a more advanced evolution of digital money that emphasizes portability and universality. When combined with open blockchain technology and accessible open-source mobile wallets, stablecoins create what can be termed the internet of value – a decentralized, borderless medium for value transfer that empowers users and enhances financial inclusion. Establishing regulations that support dollar-backed stablecoins can be an effective way for the U.S. to succeed in the digital currency market.

In the January executive order, President Trump stated that his administration supports the responsible growth and use of digital assets and blockchain technology across all economic sectors. He pledged to ensure that individuals and private entities can access open public blockchain networks without persecution, develop a supportive regulatory framework for emerging technologies and promote the growth of lawful dollar-backed stablecoins worldwide.

Also likely: BRICS central banks will keep enhancing payment systems to combat tariffs

Washington’s pro-crypto policy is backed by an increasingly assertive posture of protecting the dollar’s role as the world’s reserve currency. This includes the looming threat of tariffs against BRICS countries imposed by the U.S. if they advance plans to de-dollarize. Indeed, against this backdrop, several central banks will continue advancing their domestic payment system innovations under the banner of monetary and payment system sovereignty.

This report was originally published here: https://www.gisreportsonline.com/r/cryptocurrency-regulations/