Cryptocurrencies, the most well-known type of crypto asset, have been around since the early 1980s. While it is not the first cryptocurrency, Bitcoin’s introduction in 2009 boosted the popularity of digital assets. Since then, there have been almost 23,000 cryptocurrencies with a market capitalisation of USD 1.1 trillion (as of June 2023) and a record high of USD 3 trillion market cap in 2021.  

Recently, however, the market has started to crash, showing how volatile it could be, no thanks to a series of events that led to the 2022 crypto winter. Most notably, the FTX collapse and Terra Luna Crash. That year, crypto prices tanked by over USD 300 billion.

In a previous article, Bolder Group’s Global Head of Funds Neco Dusseldorp said the next approach of asset managers and investors towards crypto assets this 2023 (after a disappointing 2022) would depend on their vision and strategy, as well as their thesis of the situation and of crypto itself. Moreover, Dusseldorp claimed that low investor confidence in crypto is always the case in cycles. For a more in-depth breakdown of the 2022 crypto winter, read this blog.

After a gloomy year for the crypto market, 2023 welcomed some early signs of recovery. And despite encountering the first decline in AUM halfway through the year (-8.92 per cent decrease from April to May 2023), the digital asset investment space is anticipated to grow for the rest of the year as the year-to-date AUM figure notably rose to 55.5 per cent.  

The industry’s low point highlighted the need for and importance of regulations in the global crypto asset space and cooperation among market participants and authorities. 

Crypto governance

The recent events in the crypto sector and the financial services industry further pushed global regulatory scrutiny and the call for compliance. In the European Union, a new crypto assets regulation was published on 2 June 2023 in the Official Journal of the European Union, which consists of two regulations:  

• Regulation (EU) 2023/1113, on information accompanying transfers of funds and certain crypto assets, also known as the Transfer of Funds Regulation (TFR); and  
• Regulation (EU) 2023/1114, on the Markets in Crypto-Assets (MiCA).   

The MiCA covers crypto assets not previously subject to existing financial services legislation, which is expected to provide a more comprehensive regulatory regime in the EU. Read more about the MiCA in a previous Bolder article.  

On the other hand, the TFR aims to harmonise and provide for a uniform legal framework across the EU, in line with the existing Travel Rule with the recommendations of the Financial Action Task Force (FATF) to include virtual assets (VAs) and virtual asset service providers (VASPs) in accomplishing anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. Moreover, the EU’s TFR will extend the scope of the rules to cover the transfer of crypto assets, aimed at promoting financial transparency on crypto asset exchanges and ensuring that such investments are not used for criminal purposes.  

According to Bolder Group’s Global Head of Compliance Harry Polman, these recent developments in the global regulatory landscape pose a great challenge for the crypto asset service industry to comply with AML regulations.   

Moreover, Polman highlights the pressure for crypto fund managers to protect the financial industry from being misused for financial and other criminal purposes. He states: “crypto fund managers are required to fight financial crime and reduce the potential exposure to being instrumental [in] money laundering and terrorist financing purposes, similar [to] or even more so as their traditional fund manager peers”.  

Bolder Group’s Lead for Fund Solutions & Digital Assets, Mustafa Qadir also mentioned increasing and changing regulatory requirements as one of the challenges that asset managers and investors face. According to him, “Pertinent laws and regulations concerning cryptocurrencies continue to expand, and the risk of non-compliance is increasingly emerging.”  

Apart from regulations, crypto market actors continue to encounter challenges: the currency’s inherent volatility, security risks and liquidity. Market participants must also continuously innovate their systems. Qadir says: “the systems involved with digital assets are constantly being developed to suit the market, posing the need for asset managers to adapt quickly. Moreover, it can also be difficult to gather complete and relevant data and convert it into financial information for investors.”  

Crypto asset investments nevertheless present promising opportunities, albeit risks. However, crypto market actors, especially investors and asset managers, should continue to be well-informed of the risks and regulations that surround the investments. 

Bolder crypto fund and compliance solutions

Investing and managing digital assets, especially crypto assets, involves complex systems, up-to-date technologies and hands-on approaches. Crypto investors and managers need not forgo investments in the digital space but should be aware of the risks involved and be well-equipped in engaging in the crypto ecosystem.  

As a global fund and governance service provider, Bolder Group can assist in the various transactions involved in administering digital asset funds to eliminate inefficiencies and ensure the success of your funds. With our governance services, we advise and assist our asset and crypto fund clients in keeping up with increasing regulatory compliance requirements to enable fund managers to focus on the growth of their funds.   

Get in touch with a Bolder representative now to learn how we can assist you with our funds and governance services.