Crypto’s mainstream moment arrived with U.S. spot Bitcoin ETFs, record valuations, and wider retail access—but the risk picture worsened. Global standard-setters warn about stability, integrity, and investor harm; spot ETFs don’t fix those fundamentals. Authorities now have the tools and momentum to act decisively.
The 2025 Risk Backdrop: Bigger Markets, Sharper Exposures
IMF analysis finds crypto prices move with broader risk sentiment, challenging diversification claims; BIS and ECB flag growing links to traditional finance as market cap swelled in 2024–2025. Meanwhile, thefts in 2025 already exceeded full-year 2024 by mid-year, led by mega-hacks.
Where Harm Persists: Fraud, Sanctions Evasion & Consumer Losses
U.S. consumers reported $12.5B in fraud losses in 2024, with crypto a significant conduit. UK Finance reports investment-scam losses rising in 2024; enforcement agencies continue freezing scam proceeds but recovery remains hard. Crypto has also featured in sanctions-evasion schemes documented by investigators.
Enforcement Is Working—But It’s Not Enough
The U.S. Department of Justice’s $4.3B resolution with Binance underscores AML, sanctions, and reporting failures at scale. Yet FATF finds Travel Rule adoption and enforcement remain patchy worldwide—leaving cross-border blind spots.
Stablecoins: Run Risk Requires Bank-Like Prudential Rules
FSB and BIS stress that “par-at-all-times” redemption, robust legal claims, and high-quality reserves are non-negotiable. EU supervisors have begun to operationalize this via MiCA guidelines for ART/EMT redemption planning. These steps should be universally mirrored to avoid shadow-bank-style runs.
DeFi: Same Risks, New Wrapper
IOSCO’s recommendations for crypto markets and DeFi target market integrity, disclosures, conflicts, and governance. The U.S. Treasury’s DeFi risk assessment similarly warns many “decentralized” services are centralized in practice, with AML/CFT gaps. Supervisors should treat functionally similar risks the same, regardless of tech.
Market Abuse & Promotions: Close the Retail Front Door
Under MiCA, ESMA issued guidelines to prevent and detect market abuse across crypto markets; the UK’s FCA tightened financial-promotion and compliance oversight for crypto marketing. Stricter rules on claims, risk warnings, and targeting are overdue globally.
Custody, Audits & “Proof-of-Reserves”: Make Assurance Real
Regulated custody and real audits—not marketing attestations—protect investors. PCAOB staff has cautioned that proof-of-reserves is not an audit and offers limited assurance. U.S. custody reforms remain in flux; clear, technology-neutral safeguarding standards are needed so client assets are truly segregated and verifiable.
What “Putting Crypto on Notice” Should Mean (A 10-Point Regulator Checklist)
1) License the perimeter and enforce it
Apply clear licensing/registration to issuers, service providers and DeFi front-ends, in line with IOSCO/FSB frameworks. Prohibit unlicensed cross-border solicitation.
2) Enforce the FATF Travel Rule end-to-end
Mandate technical implementation, live testing, and penalties for non-compliance; close VASP–VASPs “sunrise” gaps across borders.
3) Stablecoin guardrails equal to bank-like promises
Require at-par redemption, high-quality liquid reserves, segregation, daily reporting, and credible wind-down/redemption plans; ban fragile designs.
4) Real custody for client assets
Demand qualified custodians, independent audits, on-chain address attestations, and rehypothecation limits; treat omnibus and omnibus-lookalike models with skepticism.
5) Market-abuse surveillance parity
Adopt MiCA-style guidelines on surveillance, abusive trading patterns, and insider/conflict controls; require exchange-to-exchange data-sharing.
6) Truth-in-advertising
Mandate prominent risk warnings, ban inducements to inexperienced consumers, and supervise influencers/affiliates under promotions regimes.
7) Cyber and operational resilience
Set minimum standards for incident reporting, penetration testing, bug bounties, and key-management (MPC/HSM) hygiene; publish breach metrics. (Rationale reinforced by 2025 mega-hacks.)
8) Data transparency
Standardize reserve disclosures, liquidity ladders, and stress tests for stablecoins; require public APIs for market-quality data and delisting rationales.
9) Sanctions and national-security focus
Resource analytics and freezing authorities; coordinate with exchanges to disrupt laundering networks and sanctioned venues at speed.
10) Global coordination and equivalence
Use FSB/IOSCO templates so rules travel with the activity; reward compliance reciprocity and escalate for repeat offenders.
What the Industry Should Do Now
Implement Travel Rule solutions; adopt independently verified segregation and SOC-audited custody; publish real-time reserve and liability proofs; align listing standards to MiCA/IOSCO; and embed sanctions screening and AML analytics across the stack. This is the fastest route to durable, regulated growth.
FAQs
Do spot ETFs make crypto safer for everyone?
ETFs improve wrapper compliance but don’t fix underlying market-structure or AML risks in spot venues and stablecoins—those still need prudential, market-integrity, and AML rules.
Isn’t DeFi different because it’s “code”?
Function-based supervision applies: if a service walks and quacks like a broker, exchange, lender, or fund, IOSCO says regulate it accordingly—code does not erase duties.
Who’s already moving?
The EU’s MiCA (with ESMA/EBA guidelines) is operational; the UK is rolling out promotions rules and drafting a wider regime; global bodies (FSB, FATF, IOSCO) have blueprints ready for adoption.
