This article is a preview of our series, “Charting the Course: Crypto Regulation.” Access the initial chapter here.
In a Nutshell
- Worldwide Crypto Regulations: A Patchwork: Only a handful, specifically eight, out of 25 key regions involved in crypto, representing less than a fifth of the total market, possess thorough rules. These rules address crucial aspects like financial responsibility, safeguarding users, and maintaining fair markets. Many other nations are still in the process of creating their specific regulatory guidelines.
- Focus on Financial Integrity: Advancing, but Not Yet Complete: Regulations against money laundering and terrorism financing are present in eighteen regions, making up over half of the global crypto market. However, the digital currency world remains at risk until a universally accepted and implemented system is in place.
- Protecting Consumers: Consumer protection strategies vary significantly between nations, showing the wide range of regulatory attitudes toward risk. Rules to protect consumers are present in sixteen of the jurisdictions, or 64%. Currently, 40% of these take the form of rules for marketing and advertising.
- Market Integrity: Room for Growth: Rules designed to prevent market manipulation are clearly defined in just nine regions, representing 21% of the market, making it the least regulated area. This lag is due to the complexities involved in financial markets and legal ambiguities.
- Global vs. Local Rules: As local laws develop, conflicts may appear between national laws and the reality of worldwide crypto business. This will require new international oversight, similar to conventional finance.
Cryptocurrency has evolved from a niche interest to a significant $3 trillion sector, now demanding worldwide regulatory focus. With its increasing integration into established financial systems, governments worldwide are striving to create frameworks that strike a balance between encouraging financial innovation and securing investments, maintaining financial stability, and upholding national security.
However, progress has been challenging. Digital currency products and services do not easily conform to traditional regulatory categories, pushing policymakers to consider fundamental questions: What is crypto – a payment form, an investment, a raw material, or a type of security? How does the structure of digital currency markets differ from conventional finance? Should protections be introduced through new laws or by adapting existing ones?
This inaugural installment of Chainalysis’ “Charting the Course: Crypto Regulation” offers an overview of the current situation, studying 25 regions responsible for 73% of on-chain activity, to identify commonalities and remaining gaps in regulatory oversight.
Mapping the Landscape
The quick spread of digital currency has forced financial regulations to adapt. Initially, five years ago, regulatory actions were mainly on keeping money clean. With the rising popularity and spread of blockchains, projects, and different ways to use digital currency, countries are now thinking about broader ways to protect people, keep markets honest, and make sure everything is safe and sound. Key failures like Terra/Luna and FTX have intensified the effort.
Global organizations are helping by setting standards, educating people, and giving technical help to build global agreement and drive regulations forward. Despite this agreement, different regulators across different countries are moving at their own speed.
Financial Integrity: Collective Achievement
The priority of financial integrity is stopping crypto from being used for illegal activities like money laundering, funding terrorism, and getting around sanctions. While governments have made good progress in setting up anti-money laundering and counter-terrorism financing (AML/CFT) measures, there are still noticeable holes. A report by FATF from June 2025 found that 70% of places were rated as either not following the rules or only doing so partially in regards to Recommendation 15.
Several difficulties explain these gaps:
- Blockchain technology is new, and the industry is changing rapidly. This makes it hard for regulators to keep up.
- Some regulators, particularly smaller ones, have limited resources and many other financial crime issues to handle.
- New systems and practices need to be created from scratch, such as secure ways to carry out the Travel Rule.
Technical set-up is just the beginning. Success also requires:
- Regulators to establish strong, risk-based AML frameworks, check the controls of those they license, and police the rules.
- Crypto businesses need to understand the risks and set up effective ways to check customers, watch transactions, report suspicious activity, and follow the Travel Rule.
Consumer Protection: Same Goal, Varying Methods
Consumer protection regulations are aimed at shielding investors, specifically retail investors, from harm and unethical practices. Regulators tend to favor similar protection strategies, but their implementation varies significantly due to differing risk tolerances and perspectives on balancing consumer protection with market dynamics.
Typical Safeguards
- Transparent Information: Crypto regulations usually require detailed disclosures and risk warnings, akin to those in securities regulations. For example, MiCA mandates that issuers of crypto-assets available to the public or traded on exchanges must publish a whitepaper containing essential information and risk disclosures, holding them accountable for the accuracy of the content.
- Marketing Limits: Some regulators go beyond disclosure requirements and impose further restrictions on marketing. Singapore, for instance, strictly prohibits digital currency companies from directly advertising to the general public.
- Assessments of Knowledge and Appropriateness: Nations like the UK, UAE, Hong Kong, and Singapore make it obligatory for companies to evaluate their clients’ understanding of the risks linked to cryptocurrencies. Hong Kong and Singapore also necessitate evaluations of customer risk tolerance, with Hong Kong additionally imposing exposure limits for each individual.
- Product and Service Limitations: Certain regulators have restricted the scope of offerings available to retail investors. Singapore bans using credit to buy crypto assets, and the UK is mulling similar restrictions. Some regulators only allow particular assets, while most require crypto companies to have robust processes for vetting digital tokens.
- Requirements for Custody: New regulatory systems usually require that customer assets be kept separate from company assets and stored in a way that protects them if the company goes bankrupt, using suitable storage technology. Some regulators, particularly in the Asia-Pacific region, specify cold wallet thresholds and insurance needs.
Market Integrity: Still a Ways to Go
Market integrity focuses on ensuring markets are fair and transparent, so prices reflect genuine buying and selling. Digital currency markets have grown mostly without these rules, which might have led to more unfair trading. Chainalysis research suggests that wash trading, a type of market manipulation, could account for up to $2.6 billion in trading volume, and 8.5% of tokens listed on decentralized exchanges show signs of pump-and-dump schemes.
Challenges in Implementation
In November 2023, the International Organization of Securities Commissions (IOSCO) advised extending market integrity regulations to crypto markets. However, adoption by individual countries has been slow, due to several unique challenges in the crypto space:
- In some instances, uncertainties about the legal classification of crypto-assets can pose problems. In the United States, determining whether a crypto-asset is a security or a commodity dictates which regulations apply, although enforcement agencies have successfully prosecuted offenders using wire fraud charges.
- In other instances, market structures and practices in crypto markets can create legal complexities — for example, defining rules against insider trading for projects with decentralized governance, where major project developments with potential price effects are publicly voted on.
- A more practical issue is the monitoring and policing of markets. Digital currency markets differ from traditional stock markets in ways that make it harder to spot misconduct. Trading happens on both centralized and decentralized platforms, requiring data from both on-chain and off-chain sources for proper oversight and investigation. The fact that assets are listed on multiple platforms creates new avenues for misconduct. High transaction volumes and the volatile nature of crypto trading can make it difficult to distinguish between speculation and manipulation.
Future Outlook
So far, crypto regulation has mainly centered on centralized entities like cryptocurrency exchanges, brokers, and custodians. Because these entities are the main link to the crypto ecosystem, they function like traditional financial institutions and can be regulated similarly.
As risks shift, regulators may start focusing on other types of businesses: decentralized finance (DeFi) operators, gaming companies, and aspects of the Web3 ecosystem where financial and non-financial services are mixed.
As more frameworks are put in place to address these changing risks, conflicts will likely arise between national rules and international business models that have users, order books, and liquidity pools across the globe.
The next part of this series will cover the stablecoin market, its uses, how regulations are changing, and how on-chain data can help issuers and regulators build trust in blockchains.
How Chainalysis Helps
Cryptocurrency is becoming more widely used worldwide as both an investment and a way to make payments. To fully use its potential, it needs strong protections for consumers and compliance standards that are similar to those for traditional currencies.
As crypto regulations develop, those involved—from regulators to financial institutions to crypto platforms—need current, useful information to understand the changing environment. Chainalysis is at the intersection of blockchain information and regulatory knowledge, helping markets grow in a resilient way. Through our crypto compliance solutions, services, training, and research, we help leaders in the public and private sectors make smart decisions and meet new regulatory demands.
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