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Crypto isnt dead.

Despite the very large and systemic implosions last year in the world of crypto, its on the verge of a turning point in its journey toward mass adoption. The 2008 financial crisis is a historical precedent for cryptos coming resurgence. It shows that the process is long, but well underway.

I believe that three regulatory trends will push crypto toward a tipping point. First, sentiments in the US are changing. Second, the regulatory waterfalla term I use to describe the process of international rulemakinghas been activated. Third, the industry is contributing to self-reform.

Reasonable observers have been advocating for sensible crypto market regulation, because they understand that digital asset adoption is a US economic competitiveness and national security issue in addition to a consumer protection concern.

This view has once again become prevalent in Congress, where a new group of bipartisan lawmakers has introduced legislation that promotes these core interests.

The Payment Stablecoin legislation is emblematic. By defining stablecoin reserve requirements conservatively, the bill protects consumers. By identifying which entities may issue them, it provides a clear path for businesses. And by creating demand for US dollars and treasuries, it protects the dollars role as the worlds reserve currency.

Theres no guarantee any crypto bill will pass, but we may at least be entering cryptos moment of maximum leverage. If crypto continues to win in the district and circuit courts, it will be increasingly difficult for lawmakers to defend the status quo. For those who continue to believe that opposition to crypto is a political winner, they will have the opportunity to test that hypothesis with the US electorate.

The stage is set to regulate digital assets on a global scale, with or without US participation.

As was the case in the last financial crisis, standard setters such as the BIS, FATF, FSB, and IMF likely will lead. We already have one example of their influence with the concept of virtual asset service provider, first introduced and defined by FATF in 2019. In just a few years, VASP was adopted as a foundational classification in crypto regulation, and one that has appeared in forms from the New York Bitlicense to crypto-assets service provider, in MiCA.

While the G20s recent endorsement of the IMF-FSB recommendations on crypto-asset regulation suggests an intensification of interest at the multinational level, we havent yet seen the kind of global coordination that was critical to reaching uniform rules after the financial crisis in 2009.

This is a significant opportunity for emerging regional power centers such as Dubai and Singapore, which seldom have the chance to operate at the top of the regulatory waterfall. For these countries, thoughtful regulation can attract global talent, promote local economic growth, and capture market share in the digital economy from sclerotic superpowers.

And while multiple sources of law could create conflicting rules for the industry, its also a chance to collaborate and iterate across multiple forums.

The evolving regulatory landscape presents risk and opportunity for the digital asset industry. Offering blockchain products and services in full compliance with applicable lawnew and oldis probably among the biggest opportunities.

In January 2022, Fireblocks partnered with a liquidity protocol called Aave to launch Aave Arc, which was conceived as a bridge between businesses and smart contracts. The project objective was to resolve the legitimate concerns around sanctions and anti-money laundering of legal and compliance departments. The product itself was designed as a closed protocol deployment with access restricted to businesses that submitted to KYC and exceeded minimum standards.

Arc wasnt a commercial success. Yet its had the most remarkable afterlife.

At the top of the waterfall, the Monetary Authority of Singapore adopted the idea as part of its Project Guardian sandbox, where theyre testing the viability of trust anchors as gating points for smart contracts, potentially forming the basis for new regulation.

Back at the bottom of the waterfall, identity verification has evolved again, with massive investment by industry in new on-chain passport solutions secured by zero-knowledge encryption. These products will create new commercial opportunities for businesses and individuals to participate in the digital economy in full compliance with applicable law, which may enable future collaboration with regulators.

Is it morally right to ensure that blockchains arent used to finance terrorists and help criminals launder money? Of course it is.

But the reason Im confident it will happen at scale is that its lucrative. More importantly, its the next essential step to pushing crypto across the tipping point.

We meet in the midst of a critical transition from crisis to recovery to turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21st century global economy. This statement, part of the G20s response to the financial crisis of 2008, is even more apt for the paradigm shift underway in crypto markets today.

As dire as financial markets looked then, their recovery was full and comprehensive. Crypto, too, is moving toward its next phase.

Crypto coroners, check the pulse.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Jason Allegrante is the chief legal and compliance officer at Fireblocks, where he advises on a broad range of digital asset issues.

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Crypto Will Prevail Through the Evolving Regulatory Landscape - Bloomberg Law