Regulatory Storm Approaches: Impact on the Next Bull Market and Response Strategies
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Regulatory Storm Approaches: Impact on the Next Bull Market and Response Strategies
Centralized exchanges are centralized points that regulators can target to crack down on altcoins. But for on-chain assets, there typically isn't a single entity that controls them.
Navigating Web3 tides with focused insightsAuthor: CoinNotes
Compiled by: TechFlow
Last week, regulators showed their power over the cryptocurrency industry. The U.S. SEC is suing heavyweight figures and companies at the core of the industry—CZ, Binance, and Coinbase—and the market is now reacting to and repricing itself around regulatory risk.
What are the risks?
The SEC may argue that certain tokens are securities, meaning they—and the crypto exchanges trading them—must comply with applicable U.S. registration and regulatory requirements. Historically, when similar situations have occurred, large exchanges serving U.S. residents typically delist tokens targeted by the SEC. For example, $XRP has not been tradable on Coinbase or Binance US since the SEC labeled it a security. Without delving into legality, under the SEC’s current approach, many altcoins could likely be classified as securities, putting them at risk of being delisted from major exchanges. This would mean fewer potential buyers and reduced growth potential for these tokens.
Even worse, the SEC is now taking direct action against the exchanges themselves—critical infrastructure used by millions to easily trade cryptocurrencies. There is concern that if these platforms are banned from operating in the U.S. or other jurisdictions, or shut down entirely, the market could suffer severe damage. Moreover, there are signs that the U.S. may not be the only country beginning to take stronger enforcement actions against cryptocurrency.
We’re all bullish on this space, so let’s assume another crypto bull cycle will happen. Let’s try to speculate how this regulatory uncertainty might impact the next cycle.
Non-security tokens as safe havens
Bitcoin and Ethereum may not be considered securities by the SEC, although the latter remains less clear-cut. As a result, these assets may enjoy a relative “regulatory safety” premium that other large-cap tokens lack.
Greater legal awareness in crypto project design
Teams that proactively address legal implications in their project design—and can instill confidence in potential buyers about their token’s regulatory status—will find it easier to attract funding.
Offshore exchanges and regulatory arbitrage
We can also expect more exchanges to establish operations in jurisdictions with looser regulations, potentially leading to greater exchange diversity. Binance is unlikely to maintain its near-monopoly status.
On-chain becomes an altcoin haven
Centralized exchanges are centralized points of control that regulators can target to attack altcoins. But for on-chain assets, there is often no single controlling entity.
Ironically, I expect this to drive more capital onto the blockchain—not just leveraged speculation on established projects already listed on major exchanges. Regulation will push those seeking outsized returns into on-chain activity, and decentralization will finally play its intended role.
Note: Nothing in this article constitutes legal, financial, or other advice to guide your actions.
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