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2023’s Top 5 Crypto and Travel Rule Predictions

05 Jan, 2023

In 2022, crypto businesses saw a significant shift towards regulatory clarity.  The European Union agreed upon the Transfer of Funds Regulation (TFR) and the Market in Crypto Assets Regulation (MiCA). With the goal of providing a level playing field for crypto asset service providers (CASPs) and financial institutions across the EU while protecting consumers and investors. 

The White House released its first-ever Digital Asset Framework. The Securities and Exchange Commission (SEC) also doubled its Crypto Assets and Cyber Unit to protect investors and maintain fair and efficient markets. 

The Financial Action Task Force (FATF) published various guidelines to assist VASPs. For example, the Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers provided valuable insight for virtual asset service providers (VASPs) when choosing a Travel Rule solution. 

On a global level, many countries began shaping their regulatory frameworks to protect customers and companies, especially after the crashes of FTX, Alameda, and the South Korean Terra. 

Moreover, countries prone to unstable fiat exchange rates are testing the crypto waters by adopting Bitcoin as a currency.  Furthermore, many countries are planning or implementing Central Bank Digital Currencies (CBDCs). Many governments have sought out CBDCs due to their benefits. Central banks expect CBDCs to assist in various objectives, i.e. the reduction of fraud and money laundering, the guarantee of digital payment sovereignty, and the assurance of financial inclusion. 

With so much that has happened in 2022, the question is, what now? What does 2023 hold in store for the ecosystem? That said, 21 Analytics has compiled our top 5 Crypto and Travel Rule predictions for 2023. 

2023’s Top 5 Crypto and Travel Rule Predictions

1. Greater Travel Rule Adoption Outside of the EU 

The EU’s TFR and MiCA have sent ripples through the cryptoverse encouraging global Travel Rule adoption.  Many countries, such as Australia, Austria, Italy, Luxembourg and South Africa, have initiated the Travel Rule process or are awaiting final legislation*.  Through the rapid adoption of the Travel Rule, CASPs can expect a faster end to the sunrise issue, and customers can expect regulated trading conditions. 

*accurate at the time of print. 

2. A Shift Towards Self-Hosted Wallets

2022 was a troubling year for exchanges; with the crashes and hacks, some customers lost trust in the ecosystem and started looking for alternative methods to safeguard their digital assets. While experienced users have often opted for self-hosted wallets as a custody method, 2023 could boast more self-hosted wallet (also known as unhosted wallets) users than the previous years.  Additionally, with CASPs implementing compliance software options that offer a variety of wallet ownership verification methods to self-hosted wallet users, the shift has been easier for wallet users.

3. Growing Focus on Stablecoins

Investors have sought out stablecoins to protect their investments in times of volatility; this resulted in regulators relooking at existing regulations and redefining them. For example, MiCA approached stablecoins in 2022. Not only did MiCA redefine stablecoins for the European market, but it brought additional scrutiny to the issuance and governance regulations protecting investors. 

Read: Stablecoins Are No More: MiCA’s EMTs and ARTs Explained

Currently, the use of stablecoins as a method of payment is regulated and accepted in some countries like The Bahamas, Cayman Islands, Gibraltar, Japan, Mauritius and Switzerland, with the expectation of The US and UK, Canada, Hong Kong, Italy, Luxembourg, Singapore, and the UAE joining in the near future*.

*accurate at the time of print.  

4. Bitcoin Adoption As Local Currency  

Growing inflation rates and unpredictable currencies in developing countries have led to increased openness to Bitcoin adoption as a local currency to counteract these instabilities.  The Central African Republic and El Salvador were 2 of the first countries to successfully implement Bitcoin as legal tender. At the same time, these are the only 2 countries to have successfully done so; it is expected that more players will follow suit in 2023.  

5. An Increase in Central Bank Digital Currencies 

Central Bank Digital Currencies (CBDCs) are digital currencies issued by a country’s central bank. The Bahamas were one of the first regions to implement the Sand Dollar in 2020, equivalent to its local Bahamian Dollar.  2022 saw various governments implementing CBDCs or inviting proposals for the development thereof. 

Many governments favour introducing centralised currencies to ensure their foot in the crypto ecosystem. Like the Harvard Business Review, these entities also see CBDCs as a way to bring digital currency to the mass public and ensure governments maintain digital currency sovereignty.

However, one thing is sure for 2023, with the global growth of the crypto ecosystem, there will be an increase in Travel Rule adoption with the intention to safeguard all entities involved. The existing regulatory and to-be-implemented frameworks are to be watched as they will define what technological solutions gain relevance and what direction crypto entities will take.  

Reach out to us today to learn more about the Travel Rule solution, 21 Travel Rule, or how you can start your crypto venture

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