A new survey commissioned by digital assets fund manager Nickel Digital found that 92 percent of institutional money managers agree with the U.S. Security and Exchange Commission’s (SEC’s) “regulation by enforcement” policy towards the crypto industry.
On the survey findings, Anatoly Crachilov, CEO and Founding Partner at Nickel Digital says, “Improved regulatory oversight is vital if the digital assets sector is to continue its recent strong performance and become the investment mainstream.”
The global survey included 200 respondents from institutional investors, pension and hedge funds, wealth managers, and family offices across the U.S., the U.K. Germany, Switzerland, the U.A.E., Singapore, and Brazil, representing $3.5 trillion of managed assets collectively.
This sign of support from the institutional community for Gary Gensler, the SEC Chair’s policy, comes as pressure mounts against the SEC’s proposed sweeping reforms of the private funds industry across private equity, real estate, and hedge funds. The proposed rules to further protect investors include detailed quarterly reporting on performance and terms to limit expenses private managers can pass on to their clients.
The number of crypto enforcement actions is advancing at a record pace. By the beginning of June, the SEC had brought 24 enforcement actions against crypto firms this year, compared with 30 for 2022 and 20 for 2021. The high-profile actions in 2023 include two of the world’s biggest crypto exchanges Coinbase and Binance.
Coinbase is alleged to have traded crypto assets that are securities that the SEC claims should have been registered, while Binance is accused of offering 12 crypto assets without registering them as securities. Both deny the SEC’s allegations and say they will vigorously defend themselves in court.
Critics say the SEC is overreaching and that having failed to prevent disasters such as FTX, is now looking to clampdown on crypto. The crypto industry is waiting to see if the SEC runs into trouble with legislators in Congress or the Supreme Court, following a federal judge ruling that while Ripple’s direct sales of XRP to institutional investors violated securities law, its programmatic sales to retail investors through exchanges did not.
It’s Not Just About The SEC, It’s About Regulation
While the view of many in the global crypto industry is that the Europe Union leads the crypto regulation pack with Markets in Crypto Assets (MiCA), with the U.K. now focused on implementing its crypto framework in 2024 following the passing of the historic Financial Services and Markets Bill, many worry that SEC enforcement actions will drive crypto firms out of the U.S. deterring investment and innovation.
Survey respondents across the board believe the U.S. will lead the way in developing robust regulation for the sector, with 53 percent indicating it as the jurisdiction with the best approach narrowly ahead of 52 percent for the U.K. and 49 percent the European Union.
The survey found that institutional investors and wealth managers believe the U.K. and the U.S. are the most committed to developing the digital asset markets with the ambition of becoming leading global centres for the sector. 54 percent questioned selected the U.K. while 50 percent picked the U.S. among their top three countries. 33 percent selected the U.A.E while 30 percent chose Switzerland and 29 percent Germany with 21 percent pointing to Brazil.
There is broad agreement that regulators around the world are committed to developing the digital assets market and want to become leading global centres. There is competition among regulators and governments to attract crypto and digital businesses to their countries and a focus on making the sector as successful as possible.
That the U.S. has come out on top for crypto regulation will raise an eye in the crypto industry. It is worth bearing in mind Winston Churchill’s thoughts on the U.S. as he famously observed that “Americans will always do the right thing, only after they have tried everything else.”
Coinbase recently indicated leaving the U.S. was not in the realm of possibility but spoke about its support for the U.A.E.’s crypto-specific regulatory regime and revealed plans to set up a regional headquarters in the region. 21 percent of survey respondents indicated the Middle East will lead the way in crypto regulation, with 26 percent of the survey respondents favoring Asia.
Crachilov adds, “Regardless of which country ultimately leads the way, the intensifying competition between various jurisdictions to create a crypto-friendly environment will ultimately boost adoption of the asset class.”
Institutional Investors Are Anticipating More Crypto Regulation
Almost all the institutional investors questioned believe regulators are committed to introducing robust regulation with over 90 percent responding that regulators are “very committed (41 percent)” to “quite committed (55 percent)” to introducing robust crypto regulation.
There is strong support for the SEC “regulation by enforcement” approach among institutional investors with 92 percent of those questioned agreeing it’s the best way forward for the sector. 90 percent believe recent SEC action against Coinbase and Binance will ultimately be positive for the expansion of the digital assets sector.
92 percent of institutional allocators believe Gary Gensler’s tenure as SEC chair and approach to crypto regulation has made America a more attractive place to conduct business despite evidence that crypto-native businesses are being driven out of the country due to regulatory uncertainty.
Among U.S. investors questioned for the survey, the support for the SEC approach is even stronger – 73 percent of U.S. respondents believe regulators are very committed to introducing robust regulation while a further 27 percent believe they are quite committed. 80 percent believe the U.S. is leading the way in developing regulation for the sector.
One further point from the research is the response from institutional investors and wealth managers who have not invested in digital assets who were asked what was stopping them. One in three (34 percent) indicated the key barrier was regulatory uncertainty. The biggest deterrent remained volatility – cited by more than half (51 percent) – but regulation is central to convincing non-investors to start investing.
Unlocking further investment in crypto assets is important to the wider success of the digital assets sector which ultimately is about so much more than just coins. More than three-quarters (77 percent) of the investors questioned believe the growth of decentralized finance (DeFi) will have a major impact on their business and want to engage with it. One of the biggest barriers to them doing so is of course, regulation of the sector.
It is perhaps not too surprising the money managers in highly regulated businesses in financial services look to regulatory certainty, making money has plenty of risks associated with it from market to macro – geopolitical to climate. Most institutional money managers are successful at mitigating regulation risks to focus on doing their job for investors – delivering compelling risk adjusted returns.
The survey data is currently being compiled into a report and will be available soon on the Nickel Digital research page.
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