What’s happening with crypto? Five key crypto compliance updates from 2023

Cryptocurrency has exploded in the past decade – with 420 million crypto users worldwide, 45 million of which reside right here in the U.S.

But as crypto grows in popularity (and more clients begin asking questions about it), regulatory authorities are weighing how it should be overseen. And although it may seem slow-moving, there have been some updates in the past year surrounding crypto laws, violations, fraud and more.

If you’re considering offering guidance on digital assets to your clients, or simply want to stay apprised of the state of crypto compliance regulations, these five updates from 2023 are a great way to get started – let’s dive in.

Five crypto compliance updates from 2023 every adviser should know

1. Many regulatory questions remain unanswered

President Biden signed an executive order last spring, calling on several government agencies for a “whole-of-government approach to address the risks and harness the potential benefits of digital assets and their underlying technology.”

But more than a year and a half later, many investment advisers are still awaiting further information. From defining crypto assets as securities to custodial requirements and proposed tax implications, crypto compliance is still swirling with unanswered questions.

Whether you are hesitant to embrace crypto until further guidance is provided or worried about losing potential clients to competitors who have already embraced digital assets, experts and authorities alike recommend a conservative, disclosure-heavy approach.

2. But the SEC is still cracking down

While we await more formal laws on crypto compliance, the SEC is still stepping into the conversation.

In March 2023, they published an investor alert on exercising caution with crypto asset securities. The alert touched on the risks and volatility associated with crypto, as well as common scams and the importance of an investment plan.

3. FTX’s crash had a lasting impact

You’ve likely heard of the FTX crash of November 2022, in which the cryptocurrency exchange platform lost billions, their CEO filed for bankruptcy, a potential multi-million dollar hack occurred and the original founder was arrested.

Such events have – unsurprisingly – impacted investor, adviser and regulatory fears surrounding cryptocurrencies.

An October 2023 article from Reuters described the crypto market as “scarred” and reported that “crypto prices, volumes and venture capital investment are well below their 2021 peaks.”

And while the fallout has been generally contained within digital currencies, some industry experts believe that the collapse could set crypto back years and shatter investor confidence.

4. Fraud remains a top concern

Lack of regulation or standardized processes in crypto has also opened up investors to scams. The storage solutions available for crypto assets also pose significant risks, ranging from simple flash drives to online, password-protected options that remain virtually untraceable in the event of a hack.

In one recent instance, the SEC obtained an emergency order to freeze assets of a Utah-based company that’s charged with selling an estimated $50 million in unregistered securities to U.S. investors.

5. Further U.S. regulation isn’t a question of “if” – but of “when”

Regulators continue to push toward clearer guidelines for investment advisers, but a specific timeline is still yet to be established.

The PwC Global Crypto Regulation Report 2023 stated:

“It may seem that regulators are playing catch up, having to grapple with the speed of change while trying to ensure staff have the right skill sets and resources to support the policy-making process… The bar is rising to bring digital asset firms in line with traditional financial services obligations. And for consumers, firms, and other stakeholders, it seems that this change could not happen soon enough.”

Until then, investment advisors would do well to err on the side of caution and keep a keen eye on updates from regulators.

Cryptocurrency is a relatively new financial industry with growing regulatory needs. With knowledge of these five updates from 2023, advisors are better prepared to answer client questions.

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