The US crypto industry is facing a great regulatory clampdown and it could have significant implications. Triple-A estimates show that 45 million crypto owners reside in the US alone. But the real story may be the institutional capital that was entering the space.
At one point in 2021, it seemed as if crypto was truly making a run into the mainstream and establishing itself as its own asset class. Tesla bought $1.5 billion of Bitcoin for its balance sheet in February 2021, El Salvador declared Bitcoin legal tender, and ProShares launched the first futures-based Bitcoin ETF on the New York Stock Exchange under the ticker “BITO”.
But the trajectory is now the complete opposite. Prices and volumes have collapsed, and BITO lost $1.2 billion of investors’ money in its first year, the worst debut year of an ETF ever. Crypto’s reputation has also been tarnished by several high-profile scandals.
Regulators are putting the squeeze on. Coinbase and Binance were sued last week, and a raft of cryptocurrencies were declared as securities by the SEC. Robinhood and eToro have suspended trading for US customers of certain cryptocurrencies. These moves make it more difficult for institutions to allocate client money to crypto.
And now, Crypto.com announced that it is shutting down its institutional exchange, citing lower demand following recent events in the industry. Retail customers will still be able to buy crypto, but institutional capital will dwindle, which will dampen trajectory of the industry going forward.
The US market is too big, and even if crypto flourishes elsewhere, it will never reach the same highs without the US on board. Crypto may be inherently decentralised, but regulation can still shut down the US crypto industry. This is a massive problem for crypto, and the sector will be cut off from the biggest financial market in the world.
