The Future of Crypto: Regulatory Clarity

The crypto industry has faced ongoing regulatory ambiguity, yet change is on the horizon, according to Michael Higgins, CEO of Hidden Road, in his interview with Finance Magnates.

Hidden Road, a multi-asset prime broker, has recently secured a license under the Markets in Crypto-Assets (MiCA) regulation in the Netherlands. This milestone is pivotal in their strategy to create a regulated infrastructure for institutional crypto trading globally.

Regulatory Balance and Market Evolution

Higgins discussed the strategic vision of Hidden Road while addressing the evolving regulatory landscape for digital assets. Their new license places the firm among just four entities approved under the EU’s comprehensive crypto-asset framework.

“The goal of MiCA is to provide certainty and clarity in the digital asset space, which today has seen considerable ambiguity between different global regulators,” Higgins stated. This clarity is crucial for larger financial institutions seeking transparent regulatory oversight.

The EU’s ESMA is considering introducing additional employee requirements for crypto firms under MiCA. There’s a focus on ensuring that existing traditional finance regulations do not stifle innovation in the emerging crypto space.

Managing Volatility, Risk and Regulatory Landscape

Higgins addressed the recent market volatility by explaining Hidden Road’s risk management strategies, highlighting the importance of margin management and assessing counterparty credit risks. He expressed optimism about the changing regulatory climate in the U.S., especially with new leadership at the SEC and CFTC, suggesting potential regulatory clarity ahead.

Key policy changes under Donald Trump’s approach, such as the repeal of SAB 121, could also facilitate banks’ entry into the crypto market, especially regarding custody services.

Institutional Adoption Challenges

Institutional adoption of crypto faces hurdles, particularly related to financial transparency. Higgins noted that resistance from crypto exchanges to provide audited financial statements poses significant barriers for institutional investors committed to KYC and due diligence.

The lack of consistent accounting and auditing standards creates a scenario where firms struggle to provide necessary audits, emphasizing that institutions conforming to traditional requirements will emerge as the winners in the market.

“This is Not Going Anywhere”

The conversation transitioned to the market’s maturation, with Higgins remarking that cryptocurrencies are here to stay. He cited significant trading volumes on the debut of BlackRock’s ETF as evidence of the growing maturity of the market infrastructure.

Central bank involvement in holding digital assets could serve as a potential inflection point for the crypto space, shifting perceptions of digital assets as a legitimate investment class.

“The Future is Global”

Looking toward 2025, Hidden Road plans to enhance its traditional market offerings while focusing on regulated institutional crypto trading. Higgins envisions utilizing advanced technology for margin financing and clearing, aiming to leverage private market capital.

He predicted that while crypto began in retail, institutional participation would eventually surpass it, echoing trends seen in other asset classes. He stressed the global demand for institutional crypto, with various financial centers, including the U.S., closely monitoring regulatory developments.