Crypto for Advisors: Will 2026 Be the Year of Crypto Regulation?

Core Insights - The U.S. regulatory outlook for digital assets is becoming more constructive, with bipartisan agreement on core elements of crypto market structure legislation, although political bottlenecks remain [4] - The focus of U.S. crypto regulation is shifting towards competitiveness, with over 80% of global crypto trading volume occurring offshore, highlighting the need for clear and effective regulations to attract trading back onshore [7][8] - Two critical unresolved issues are token classification and liquidity provision, which will determine the success of U.S. crypto regulation [9][11] Regulatory Framework - The SEC oversees disclosures and conduct related to fundraising, while commodities regulators focus on trading and market integrity, suggesting a need for a clearer framework for digital assets [1] - A functional approach to crypto market structure is emerging, treating non-security tokens as commodities in secondary markets while keeping capital formation under SEC oversight [2][3] Market Competitiveness - Effective regulation must protect customers and make the U.S. an attractive venue for capital formation and trading, emphasizing technology-neutral rules that regulate outcomes rather than specific architectures [8] - The current regulatory environment poses risks for market makers, leading them to operate offshore due to ambiguous rules and potential regulatory backlash [15][17] Token Classification - Clear token classification is essential for reducing uncertainty and risk for investors, enabling better pricing and investment decisions [18][19] - A functional "network token" framework must rely on objective criteria tied to how a token functions and accrues value, rather than historical issuance mechanics [9][10] Liquidity Provision - Deep and resilient markets require professional liquidity providers, and explicit exemptions for market-making activities would improve market quality [11] - Legal risks associated with unclear regulations discourage onshore participation, leading to thinner books and greater volatility [11] Future Outlook - 2026 is anticipated to be a transition year for U.S. crypto regulation, with potential progress in operationalizing broadly agreed-upon ideas [12] - The direction of U.S. crypto regulation is moving towards a more regulated, competitive, and institutionally accessible market, with the speed of implementation remaining a key question [12]