In my opinion, regulation is an essential aspect not just for crypto, but for any industry where the public's interests must be protected. Without adhering to some form of regulation, building trust with potential investors and partners would be much more challenging for most companies. This is why the topic of regulation in the crypto market is only becoming hotter as the market matures. The crypto industry is developing at such a rapid pace that the regulators are hard-pressed to keep up.

Just take a look at how the DeFi market has been kicking up a storm lately. The entire framework of financial institutions is being built in a parallel DeFi universe – we are not just talking distributed exchanges, but automated market making, lending and insurance projects. Everything is done without a registered company in charge. How are you even supposed to regulate something that doesn’t have a place of jurisdiction and a legal entity behind it? The same story applies to cryptocurrencies to an extent, but I believe that with DeFi, things will be even more challenging for the regulatory space.

The problem here is that, in order for companies to build reputable, trustworthy businesses, their customers need some kind of guarantee that their funds are well-protected. Which means those companies have to comply with some rules, after all. Therefore I believe it is safe to expect an acceleration in terms of the regulation of cryptocurrencies all over the world. We can already see how it is happening across different countries: the UK, Germany, France, Austria, Canada, Japan, etc. 

The regulation will bring stability and trustworthiness to the market, but it will not come without a price – that price being the narrowing of competition and the market overall.

With stricter regulation, it will get harder for smaller players to survive. In my opinion, we will likely see a period of mergers and acquisitions between medium and small exchanges. And after that, regional leaders will emerge – maybe 10-15 top players for the entire EU region - and this group of leaders will keep getting larger after that..

At CEX.IO we have been following the path of a trusted market participant for a long time now, willingly seeking regulation in all markets that are relevant to us. We now have MTL (money transmitter licenses) in almost all of the States in the US, we are FinCEN registered and hold a DLT license in Gibraltar. Additionally, we are in the final stages of the FCA registration in the UK. On top of this, our applications are being reviewed in Singapore, Germany, Austria, the Netherlands, France and Canada.

As for how cryptocurrencies themselves will change in the future - I firmly believe that, soon, cryptocurrencies will become a full-blown asset class within the investment industry, somewhat similar in nature to high-risk equities or high-risk FX currencies. 

This assumption of mine is based partially on the progress on the regulatory front, partially on the way the markets are deforming and the fact that the interest rates and yields of other investment instruments are now meager, if not outright negative. Institutional investors and funds are progressively seeking new investment opportunities in order to satisfy the levels of ROI that their investors expect from them.

I find it really doubtful that cryptocurrencies are going to be dominating the financial industry any time soon though. That would require most of the countries around the world to unanimously decide to use blockchain technology as the basis for issuing financial instruments. And even if something like this ever becomes possible, it definitely won’t be happening in the immediate future. 

Personally, what I would love to see is pension funds permitting small parts of their investments to move into cryptocurrencies. This would be the trigger, after which we can say that cryptocurrencies have genuinely become a notable part of the financial investment world.