Bank of America Says Regulation Is Key for Mainstream Adoption of Crypto

The bankruptcies of crypto exchange FTX and its affiliated trading firm, Alameda Research, are major blows to the cryptocurrency industry’s credibility, but there are silver linings, Bank of America (BAC) said in a research report Friday.

“An increased urgency for regulation may enable greater institutional engagement, and a shift in focus (and capital) from speculative trading to projects with real-world functionality and companies with road maps to profitability may accelerate industry maturity,” analysts Alkesh Shah and Andrew Moss wrote.

Regulatory frameworks for the crypto industry are critical for mainstream adoption, the report said, and a coordinated global effort is required to discourage regulatory arbitrage and to safeguard consumers and investors.

FTX’s collapse has refocused attention on the need for regulation that “creates a transparent legal framework for digital assets; fosters technological innovation; provides consumer and investor protections and mitigates financial stability risks,” the note said.

The bank noted that the top 100 crypto tokens have fallen 64% year to date, but pointed out they are still up 2,175% since the end of 2016. The cost of ignoring digital assets is high, it said.

The development of blockchains that are smart contract-enabled and applications with real-world use has accelerated this year, the report said. Speculative trading may be widespread, but it's the “underlying blockchain technology driving this speculation that could be revolutionary.”

Bank of America said that “retail and institutional disengagement” could further pressure crypto prices, but noted that digital-asset prices fell 22% between Nov. 2 and Nov. 10 before rising 6% through Nov. 25, which shows that investors may be moving on and are focused on blockchain technology’s long-term disruption potential.

Read more: Bernstein: Crypto User Activity Is Moving On-Chain Following FTX’s Collapse