The year 2025 is already proving to be another year of significant regulatory milestones for the crypto sector, which stands at a pivotal juncture, poised for a new era of sweeping financial regulation. The global landscape for digital assets is evolving rapidly, shaped by policy shifts, political changes, and technological advancements across various regions.
Crypto regulation is taking shape globally
We have started to see what the European regulators would like thanks to the full implementation of the region’s comprehensive regulatory framework, Markets in Crypto-Assets (MiCA), in December 2024. MiCA has been widely welcomed as potentially setting the global benchmark; however, critics argue that its rigid rules on stablecoin reserves and interest payments, for example, may hinder innovation. With pressure from the European Securities and Markets Authority (ESMA), EU exchanges may soon be forced to delist major stablecoins like Tether’s USDT.
The UK’s crypto ambitions face hurdles due to political instability and slow regulatory progress, risking its financial sector competitiveness. That said, the new government plans to implement its predecessor’s crypto regulation proposals, with draft legislation expected in 2025.
Across the Atlantic, Donald Trump’s return as U.S. president has boosted crypto optimism, in stark contrast to his predecessor Joe Biden’s anti-crypto stance. Styling himself as the “First Crypto President,” he pardoned Silk Road founder Ross Ulbricht and promised a “golden age” for digital assets. His inauguration saw Bitcoin hit record highs and the launch of Trump-related meme coins. Gary Gensler’s exit as SEC chair and Paul Atkins’ nomination signal a likely shift towards crypto-friendly policies, departing from Gensler’s antagonistic approach.
El Salvador’s bold Bitcoin experiment continues in 2025, with stablecoin giant Tether announcing plans to relocate its headquarters to El Salvador after receiving a digital asset service provider (DASP) license in the country. The government plans to install Bitcoin nodes in every home, aiming for full “Bitcoinization” and positioning it as a crypto adoption leader.
In Asia, Hong Kong is positioning itself as a crypto hub, having introduced a licensing regime for crypto exchanges in 2023, which has led to the licensing of several firms with many more going through the licensing process currently. Singapore’s balanced crypto regulation continues to solidify its role as a crypto hub, with initiatives like “Project Guardian” and “Orchid Blueprint” aiming to foster the growth of decentralized finance (DeFi) and tokenized asset ecosystems. Japan, one of the earliest adopters of crypto regulation, continues to refine its approach, with plans to treat crypto more like traditional financial products.
In Africa, Nigeria has significantly changed its anti-crypto stance, with the Central Bank of Nigeria (CBN) overturning its 2021 ban on financial institutions dealing with crypto. This effectively resolved regulatory inconsistencies with the Nigeria SEC’s Digital Asset Rules, and several crypto exchanges have since received Approval-in-Principle licenses. Kenya has published a draft policy framework on crypto regulation for consultation, whilst South Africa has granted numerous crypto asset service provider licenses.
The United Arab Emirates is emerging as a major crypto hub, with Dubai’s Virtual Assets Regulatory Authority (VARA) creating a favourable environment for crypto businesses. The UAE’s friendly regulations and initiatives, like the DMCC Crypto Centre, attract exchanges, developers, and investors, fostering growth and innovation in the sector.
Where next for crypto?
One thing is clear: this shift towards more comprehensive public sector oversight in many countries will help the industry mature but may also pose serious challenges to innovation.
However, crypto’s global and borderless nature may become a casualty of growing geopolitical tensions characterized by trade wars, increased nationalistic protectionism, and a disorderly retreat from globalization.
Yet, like the internet technology that it lives on, crypto wants to be global and free of geographical boundaries. Projects are built by globally distributed teams using open-source code. They are supported by followers and enthusiasts from every corner of the world through decentralized governance mechanisms and social media platforms. Cryptoasset markets are open for trading 24 hours a day, 365 days a year.
Although it has already achieved near-impossible feats–the transfer of value without relying on trusted central counterparties—we don’t yet know just how transformative crypto technology will become, so we must be careful not to stifle its innovative tendencies before its full benefits can be realised.
Striking the right balance between regulation and innovation in the crypto industry is indeed crucial for its future development and adoption. This delicate equilibrium requires a nuanced approach.
Policymakers must be unashamedly pro-crypto innovation
Effective consumer protection is essential to achieve mass adoption. It is equally important to foster an environment that allows for experimentation and growth.
To be pro-innovation means being open to experimentation. Being open to experimentation requires as a precondition a tolerance of failure. So, policymakers (including legislators, governments, and regulators) must resist their apparent urge to curtail crypto adoption and instead create agile frameworks that can keep pace with the rapidly evolving nature of digital assets, establishing clear guidelines without imposing unnecessary restrictions on experimentation.
Implementing regulatory sandboxes is one way to go, as we can see with Singapore, the UK, and the UAE. The special regulatory environments provide a controlled environment for innovative companies to test new products under more relaxed requirements.
But to be truly pro-innovation requires a deep understanding of the underlying blockchain technology. You can’t effectively govern what you don’t understand. Policymakers must move beyond viewing blockchain technology as merely a way to make existing financial markets work faster or more efficiently because it is so much more than that.
We must also ensure that policymakers are not driven by a misguided or corrupt desire to protect existing traditional financial sectors from new competition. Competition is good for consumers, good for innovation, and good for society.
Collaboration between the industry and policymakers is essential
Continuous dialogue between regulators and the crypto community is crucial for shaping a pragmatic and adaptable regulatory environment. Given the global nature of crypto, enhanced international cooperation and coordination is essential.
However, efforts to harmonize regulations across jurisdictions should strive for technological neutrality. It should focus on the functions and risks of crypto assets rather than specific technologies.
The borderless nature of crypto means that any attempts to balkanize crypto platforms will fail. Regulators need to cooperate to achieve common international standards for crypto regulation, relying on home-host arrangements to streamline regulation and avoid unnecessary duplication of supervisory efforts.
Otherwise, additional costs incurred by firms from unnecessary regulatory duplication will only be passed on to the end users and consumers without a corresponding increase in consumer protection.
The crypto sector, for its part, must act responsibly, using the very technological advancements of blockchain technology to prevent, detect, and punish wrongdoings and bad actors. Management must ensure that their teams at all levels are open, honest, and transparent in interactions with regulators.
Given the complexity of the technology and the fast-moving nature of innovation in the space, the crypto industry must work hard to make it easy for the public and policymakers to understand. If new innovations are not easily understood, then we risk public misunderstanding and regulators defaulting to the familiarity of what they perceive as analogous concepts in traditional finance – which may lead to unintended consequences.
The crypto sector must be proactive in explaining new concepts to regulators and the public. It must be candid in highlighting identified deficiencies and the risks inherent in new innovations. For example, industry bodies could publish easy-to-understand discussion papers and host free training sessions.
Looking ahead
Finally, as FinTech innovation has led to huge benefits for consumers in many countries, so will crypto innovation if managed appropriately. In fact, crypto offers arguably greater and more far-reaching opportunities. The wider spectrum of blockchain, distributed ledger, and web3 technologies offer the tantalizing promise of effectively coordinating decentralized governance, operational efficiency, and large-scale trustless human interaction.
However, balancing innovation and regulation is crucial for the crypto industry’s evolution. Creating an environment where startups and scaleups can thrive under sound safeguards is the only way we can unlock crypto’s potential while mitigating its risks.
The path to revolutionizing the power dynamics in finance is a long one. Crypto might get us there in record time, but we must not shoot ourselves in the foot.
Olu Omoyele is a former UK financial regulator and the founder & CEO of DeFi Planet. Chain of Thoughts is his new monthly column on the cryptoverse.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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