Crypto’s Regulatory Roadblocks: Challenges for Institutional Investors

• Blockchain Council
• March 12, 2025

For years, cryptocurrency was seen as a playground for retail traders and tech-savvy speculators. But now, institutional investors, hedge funds, pension funds, and asset managers, are eyeing the market. The money is there. The demand is growing. The infrastructure is improving.

Yet, there’s a roadblock that even billions of dollars can’t clear overnight: regulation.

Who makes the rules? Which agency has the final say? What counts as legal and what crosses the line? The answers change depending on where you ask. In the U.S., one regulator calls crypto a security, another calls it a commodity. In Europe, a new framework promises clarity, but some say it still misses the mark. And globally? Governments are scrambling to catch up with a market that moves faster than they do.

For institutions, this isn’t just an inconvenience, it’s a risk. Getting it wrong means lawsuits, fines, or getting locked out of certain markets entirely. But waiting on perfect regulation? That could mean missing out on a financial shift unlike anything in modern history.

So, where does that leave institutional investors? Somewhere between opportunity and uncertainty. Let’s understand it better.

Why Is Crypto Regulation in the U.S. So Confusing?

Which Agencies Regulate Crypto?

In the U.S., multiple agencies set rules for the crypto market. This creates uncertainty.

• SEC (Securities and Exchange Commission) treats many digital assets as securities.
• CFTC (Commodity Futures Trading Commission) sees some cryptocurrencies as commodities.

Since both have different rules, institutional investors often struggle with compliance.

What Recent Actions Have Increased Uncertainty?

The SEC has increased its enforcement efforts. In 2023:

• Binance and its founder faced legal action for mismanaging customer funds.
• Coinbase was accused of operating as an unregistered exchange.

These cases show that regulatory agencies are cracking down on crypto platforms. This makes compliance a top concern for institutions.

How Is Europe Handling Crypto Regulations?

What Is MiCA and How Does It Impact Investors?

The Markets in Crypto-Assets (MiCA) regulation aims to simplify crypto regulations in the European Union. By December 2024, new laws will apply to:

• Crypto issuers
• Exchanges
• Custodian wallet providers

This framework allows financial institutions to engage in crypto activities with proper authorization.

Are There Gaps in MiCA?

Some experts believe MiCA may not cover everything. Elizabeth McCaul from the European Central Bank warned that large platforms like Binance might not be fully regulated under current rules. More adjustments may be needed as the industry grows.

How Are Global Organizations Addressing Crypto Regulations?

What Is the Crypto-Asset Reporting Framework (CARF)?

The Organisation for Economic Co-operation and Development (OECD) introduced CARF to increase transparency in crypto transactions. It requires:

• Crypto platforms to collect personal data from users.
• National tax agencies to receive and exchange this information.

How Does CARF Affect Institutional Investors?

The European Union adopted CARF, requiring compliance from January 1, 2026. This standardizes tax reporting and provides clearer guidelines for institutions operating in crypto markets.

What Are the Latest Regulatory Changes in Key Markets?

Is the SEC Becoming Less Strict?

In March 2025, SEC chief Mark Uyeda announced plans to reconsider strict crypto registration rules. A previous proposal requiring some crypto firms to register as alternative trading systems might be removed. This suggests a shift towards a more flexible approach.

How Is Hong Kong Supporting Crypto Growth?

Hong Kong is working to position itself as a major hub for digital assets. Key actions include:

• Approving more trading platform licenses.
• Developing stablecoin regulations.
• Reviewing new products like crypto derivatives.

These steps could attract more institutional investors to the region.

Why Did the UK Approve Kraken’s License?

Kraken received approval from the UK’s Financial Conduct Authority (FCA) to offer electronic money services. This license allows:

• Easier deposits and withdrawals.
• Expansion of fiat-related services.

This move could help institutions facing restrictions from traditional banks.

How Are U.S. Regulators Changing Their Approach?

What Is the SEC’s New Strategy?

The SEC changed its stance in early 2025. The Crypto Task Force was created to provide clearer regulations. Key updates include:

• Ending legal actions against major platforms like Coinbase and OpenSea.
• Clarifying security classifications for digital assets.
• Simplifying token registration requirements.

How Is the CFTC Experimenting With Crypto?

The Commodity Futures Trading Commission (CFTC) launched a program for testing digital assets. This allows major firms to explore new financial models using stablecoins and blockchain technology.

How Are U.S. Banks Adapting to Crypto?

In March 2025, the Office of the Comptroller of the Currency (OCC) removed restrictions on banks handling crypto. Now, national banks can:

• Store digital assets.
• Run blockchain networks.
• Issue stablecoins.

This change brings crypto banking closer to mainstream finance.

What Are the Tax and Compliance Issues in Crypto?

What Are Russia’s New Crypto Tax Laws?

Starting in 2025, Russia applies a property tax to crypto assets:

• 13% tax on earnings below 2.4 million rubles ($26,000).
• 15% tax on gains above that amount.
• 25% corporate tax on crypto mining.

While mining operations benefit from VAT exemptions, strict reporting rules make compliance challenging.

How Does the IRS Track Crypto Transactions?

A new tax form, 1099-DA, requires institutions in the U.S. to report:

• Crypto purchase dates and costs.
• Whether assets were mined, staked, or bought.
• Cross-chain transfers and trades on decentralized exchanges.

These reporting requirements increase compliance costs for investors using decentralized platforms.

How Can Institutional Investors Manage Security Risks?

What Lessons Came From the Bybit Hack?

In February 2025, hackers stole $1.5 billion in ETH from Bybit. The attack exposed major risks in multi-party computation (MPC) wallets.

To prevent similar breaches, institutional investors should:

• Use certified custodians.
• Implement strict security protocols.
• Insure digital assets against social engineering attacks.

To reduce risk, institutions are now prioritizing certified custodians and security experts with recognized credentials. Professionals with a Certified Cryptocurrency Auditor™ (CCA) certification play a key role in evaluating wallet security, smart contract vulnerabilities, and exchange compliance. 

How Are Crypto Derivatives Markets Evolving?

What Does CME’s Solana Futures Launch Mean?

CME Group plans to introduce Solana futures contracts in March 2025. This would be the first regulated derivative for a non-Ethereum smart contract platform. The offering includes:

• Standard contracts (500 SOL).
• Micro contracts (25 SOL) for smaller investors.

If approved, this could make crypto derivatives more accessible to institutional investors.

What Are the Major Legal Risks in Crypto?

Why Are Private Lawsuits Increasing?

While government enforcement actions have slowed, private lawsuits are rising. Common cases involve:

• Uniswap Governance Tokens: Allegations of selling unregistered securities.
• NFT Royalties: Disputes over earnings from fractionalized NFTs.
• Institutional Staking: Investors arguing that staking services act as unregistered investment contracts.

Legal risks remain high, even as regulations shift.

How Can Institutional Investors Adapt to Crypto Regulations?

Institutions must stay flexible to handle regulatory challenges in crypto. Best practices include:

• Relying on U.S. banks for custody services under relaxed rules.
• Using EU-regulated platforms for retail-facing products.
• Optimizing tax structures under different global regulations.
• Strengthening security to prevent cyber threats.

Adapting to crypto regulations can help institutional investors manage risks and take advantage of market opportunities. That is why professionals like Certified Cryptocurrency Trader™ (CCT) are going to lead how the crypto market works in the upcoming days.