Regulatory Challenges for Institutional Investors in Crypto

• Blockchain Council
• March 06, 2025

If you’ve ever wondered why big financial institutions, like banks, hedge funds, and pension funds, are cautious about cryptocurrency, you’re not alone. It’s not just the price swings or technical complexity. A major reason is the uncertainty surrounding crypto regulations.

Rules differ across countries, and compliance requirements can be complicated. In 2025, governments are actively working to regulate crypto, but many unanswered questions remain. 

Why is Crypto So Hard to Regulate?

Regulating cryptocurrencies is tricky because they don’t fit neatly into traditional financial categories. Some see Bitcoin as a digital commodity, while others view tokens as securities. Since crypto operates on decentralized networks, enforcing regulations is also challenging.

Regulators want to protect investors, prevent fraud, and maintain financial stability. However, strict regulations could slow down innovation. Governments worldwide are trying to strike a balance, but inconsistent approaches create confusion, especially for institutional investors.

What is the Regulatory Framework for Crypto Assets?

United States

In January 2025, President Donald Trump signed an executive order called Strengthening American Leadership in Digital Financial Technology. This signaled a pro-crypto shift by reversing older restrictions and encouraging industry growth.

A month later, the Securities and Exchange Commission (SEC) launched a Crypto Task Force. This group is responsible for clarifying regulations, moving away from heavy enforcement, and working toward a structured legal framework.

The SEC is also updating Rule 223-1, which covers crypto custody. This rule will decide how institutions can safely store digital assets under legal frameworks.

European Union

The Markets in Crypto-Assets (MiCA) regulation, fully effective since December 2024, is shaping the EU’s crypto landscape. MiCA aims to create clear rules for crypto businesses while ensuring investor protection. Institutional investors in the EU now have more legal certainty than in many other regions.

Hong Kong

Hong Kong is actively trying to become a crypto-friendly hub. As of February 2025, the city has issued nine licenses for digital asset trading platforms. Regulators are also considering introducing crypto derivatives and margin lending to attract more institutional investors.

What are the Legal and Regulatory Implications of Cryptocurrency?

Unclear Asset Classification

One of the biggest legal questions is: Is cryptocurrency a commodity, a security, or something else?

For example, the SEC has accused major crypto exchanges like Binance and Coinbase of operating as unregistered securities platforms. If regulators decide that more cryptocurrencies fall under securities laws, institutions will have to register, disclose more data, and follow stricter rules.

In February 2025, SEC Commissioner Hester Peirce announced plans for a crypto asset taxonomy to classify digital assets clearly. Until then, institutions remain uncertain about regulations.

Professionals looking to better understand crypto regulations may benefit from certifications like the Certified Cryptocurrency Trader™ (CCT). This certification helps traders navigate compliance rules and market risks when dealing with institutional crypto transactions.

Compliance and Reporting Requirements

The Crypto-Asset Reporting Framework (CARF), introduced by the OECD, is designed to improve tax compliance and transparency in crypto transactions. However, because each country applies different tax laws, institutional investors operating globally face compliance challenges.

Custody and Security Concerns

Storing digital assets securely is another major concern. Traditional custodians handle stocks and bonds safely, but crypto custody requires different solutions. The lack of global custody regulations increases security risks and adds uncertainty.

Market Manipulation and Fraud

Crypto markets are more vulnerable to fraud and price manipulation than traditional markets. Regulators require institutions to follow anti-money laundering (AML) and know-your-customer (KYC) rules, but enforcement is still evolving. Failing to comply can lead to legal action and reputational damage.

What are Regulatory Protections for Crypto Investors?

SEC’s Shift in Crypto Regulation

In 2025, the SEC is moving toward clearer guidelines instead of aggressive enforcement. The Crypto Task Force, launched in February, is meant to provide clarity on regulations and encourage institutional investment.

The U.S. Crypto Strategic Reserve

In March 2025, President Trump announced the creation of a U.S. strategic crypto reserve. This reserve includes Bitcoin, Ethereum, XRP, Solana, and Cardano. The government’s involvement is expected to boost confidence and accelerate institutional adoption.

Global Regulatory Coordination Efforts

The OECD and other international organizations are working to harmonize crypto regulations across different jurisdictions. A standardized approach would help institutional investors operate across multiple countries without dealing with conflicting rules.

What are the Regulatory Challenges for Institutional Investors in Crypto?

Inconsistent Regulations Across Countries

Institutional investors often operate in multiple regions, but crypto laws vary widely.

For example:

• South Korea is allowing institutional investors to trade crypto, but only under strict KYC and tax reporting requirements.
• China still has a ban on crypto trading and mining, making it impossible for institutions to invest there.
• In the U.S., different agencies (SEC, CFTC, IRS) disagree on crypto classifications, adding further confusion.

High Compliance Costs

Regulatory uncertainty increases costs for institutional investors. They must hire compliance teams, upgrade reporting systems, and conduct audits. This adds a significant financial burden, especially for smaller investment firms.

Custody Risks and Cybersecurity Concerns

Institutions need secure storage solutions that comply with regulations. In February 2025, Bybit suffered a massive hack, resulting in major losses. This event highlighted the risks associated with crypto custody and security.

To mitigate risks, professionals can pursue a Certified Cryptocurrency Auditor™ (CCA) certification. This helps firms ensure compliance with security protocols and maintain high standards for digital asset protection.

Tax and Reporting Complexity

Governments are tightening crypto tax rules, requiring institutions to track every trade and report earnings accurately.

• Russia introduced new tax laws in January 2025, making crypto transactions taxable as property.
• The IRS released Form 1099-DA for digital asset transactions, increasing reporting requirements for U.S. investors.

What Regulatory Protections Does Crypto Have?

Solana Futures and Market Expansion

The CME Group is planning to launch Solana futures in March 2025, pending approval. If approved, this would provide institutional investors with regulated exposure to Solana, boosting confidence in crypto derivatives.

Coinbase’s Legal Victory

In February 2025, Coinbase settled its legal battle with the SEC, reducing uncertainty in the crypto exchange sector. The settlement may encourage more institutional investors to enter the market.

South Korea’s Institutional Trading Approval

South Korea’s phased approach to institutional crypto trading is expected to bring in billions of dollars in investment. However, strict KYC and reporting rules will still apply.

How can Institutional Investors Overcome Regulatory Challenges?

Stay Updated on Policy Changes

Institutions should follow SEC, CFTC, and global regulatory updates to stay ahead of new rules.

Work with Compliant Custodians

Choosing regulated custody providers helps protect assets and ensures compliance with security regulations.

Implement Advanced Compliance Tools

Institutions can use blockchain analytics tools like Chainalysis, Elliptic, and CipherTrace to monitor transactions and detect suspicious activity.

Engage with Regulators

Institutional investors should participate in regulatory discussions, such as the SEC’s Crypto Task Force, to help shape future policies.

What is the Road Ahead for Institutional Investors in Crypto?

Despite the regulatory hurdles, crypto adoption continues to grow among institutions.

• The SEC’s softer approach is encouraging investment.
• South Korea’s gradual acceptance of institutional trading signals more mainstream adoption.
• The U.S. government’s crypto reserve shows that digital assets are becoming a national priority.

While challenges remain, proactive investors can take steps to manage risk, meet compliance requirements, and find opportunities in the evolving market.

Crypto’s future in institutional finance is far from settled, but it’s undeniably gaining momentum.