• The investment banking giant has rolled out the possible regulatory changes that will take place in the crypto industry following the FTX debacle.
• JPMorgan further said consumer protection would become a core part of the regulatory changes for the digital asset industry.

After the collapse of FTX and its sister firm, Alameda Research, there has been an outbreak of other crypto exchanges facing liquidity crises or facing bankruptcy. With the halt in withdrawals triggering discussions about the future of the digital asset industry, new regulations might revamp the crypto space following the downfall of the FTX group.

With the current crisis facing the crypto industry, there will be increased investor and regulatory pressure on exchanges to reveal proof that they have enough reserves to stabilize their platforms in the event of a liquidity crunch. Based on the past few weeks’ happenings, here are some changes JP Morgan envisions will shape the crypto industry post-FTX.

Major changes coming to the crypto industry in 2023 pic.twitter.com/qW6cHLyc6N

— Alex Krüger (@krugermacro) November 28, 2022

The most crucial bill discussed within the crypto community is the EU’s Market in Crypto Assets (MiCA) regulations. It is worth noting that the MiCA bill has passed most of the legislative procedures of the European Union. The comprehensive crypto regulation bill is awaiting final approval from the European Parliament.

However, there is expected to be a transition phase of close to 18 months before the full implementation of the regulations in 2024. Furthermore, the MiCA regulation brings all crypto assets and markets under a single agency. Activities like minting new coins, stablecoin issuance, and user information for all transactions are also covered in this bill.

Interestingly, the bill also placed a cap on the number of stablecoins an issuer can approve, especially if they are not pegged to the Euro or another EU currency. With the United States lagging behind the EU in terms of having comprehensive crypto rules, JP Morgan noted that this partly reflects the conflicts among the various US regulatory bodies.

New crypto rules may focus more on custody

According to JP Morgan, consumer protection will become a core part of the regulatory changes for the digital asset industry, as is the case with the traditional financial sector. Even before the new guidelines are enacted, retail and institutional traders are taking measures to protect their crypto assets.

With the crash of the FTX crypto exchange, the community is longing for self-custody wallets, with service providers seeing a spike in sales in recent days. Another critical area of focus for the new rule is the unbundling of the so-called broker, lending, and trading entities like the traditional financial system. This will also ensure customer asset protection and prevent market manipulation.

However, offshore crypto exchanges like Binance are unlikely to escape such regulatory requirements, as they will force the exchange to submit itself to regulatory oversight. The new regulatory requirement will mandate regular reporting and auditing of assets, reserves, and liabilities from all crypto service providers.

It is similar to the traditional financial system’s method of ensuring transparency. Thus, this could create an interconnection between the crypto ecosystem and the conventional finance industry.