Lesson 3: Regulation, the crypto ecosystem launch pad

Confidence, innovation, transparency and stability are just some of the benefits to be had from crypto regulation. The cryptoasset ecosystem and the adoption of cryptocurrencies depend on a solid regulatory base.

Why does everything hinge upon crypto regulation? How can it contribute to its adoption? For every sector and industry, 'regulation and its design are essential factors in explaining productivity growth or differences in the wealth of economies,' several Spanish researchers from the Ministry of Industry, Trade, and Tourism have noted. But what are the mechanisms that enable regulation to generate trust?
Trust in a sector is likely the fundamental variable for its stabilization and success, because clients, companies, and public bodies invest in what has a clear framework, established rules, and a certain level of standardization. A deregulated sector fails to inspire confidence by its very nature.

The main benefits of market regulation

The major advantages of market regulation include the prevention of monopolies and oligopolies, the promotion of competition and innovation, the protection of consumers, and the assurance of financial stability, among others. These benefits are provided by regulatory bodies such as the Spanish National Securities Market Commission (CNMV) and the National Commission on Markets and Competition (CNMC), as well as the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss Competition Commission (COMCO).

Is the MiCA to cryptoassets to be what the PSD2 is to APIs?

PSD2, the European Union (EU) Payment Services Directive, was adopted in 2015 and came into force in 2018. Since then, the API ecosystem (protocols that facilitate the development of applications and their intercommunication) has seen reinforced growth, having a solid foundation for innovation. This EU directive is commonly cited as an example to better understand the benefits of Regulation on Markets in Crypto-Assets (MiCA), which seeks to regulate cryptoasset markets.
With harmonized rules for crypto assets at the EU level (which other regions might emulate), the Central European crypto ecosystem could follow the beacon of the API world. Indeed, Switzerland’s Distributed Ledger Technology (DLT) has been in force since 2021. Better known as the ‘Blockchain Act’, it has served to attract talent from around the world.

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Regulation implies attracting startups and talent

A startup is looking for a home for its business. Where in the world will its idea take root? Likely in one that provides the strongest assurances for its assets, goods, and business model. In cryptocurrencies, Switzerland stands as the paragon of a country drawing innovation through regulation, evolving into a hub with its distinct momentum.

What is the advantage of having a local, regulated hub? Any company that sets up in Switzerland to work in cryptocurrencies increases the country’s value in terms of future startups, triggering a Metcalfe network effect (according to which value is measured as the square of the users, in this case companies), not to mention the density innovation effect this in turn inspires.

In other words, any company that sets up in Switzerland to work in cryptocurrencies increases the possibility of innovation arising in an increasingly denser ecosystem. Why? Because possibilities increase, as does the amount of collaboration, competition, diversity and access to talent, among other key factors.

Crypto regulation will contribute to the adoption of cryptocurrencies, blockchain-based systems, and innovations derived from this technology; moreover, it will serve to drive those regions that are the first to establish a working framework to endow the sector with confidence.