Crypto’s rapid expansion: Regulation, tokenization, and technology

Key convened a group of experts to answer the most pressing questions about cryptology and the blockchain at the most recent KeyBanc Capital Markets Technology Leadership Forum. On the Wallets, Exchanges and Miners: A Crypto Worldview Panel, Alex Markgraff, VP at KeyBanc Capital Markets, led a conversation with crypto leaders Fred Thiel, chairman and CEO of Mara Holdings, James Gernetzke, CFO at Exodus, and Gary Simanson, executive director, president, and CEO of Coincheck Group N.V.
 

The U.S. leads innovation

The U.S. is taking significant steps to become a leader in the global crypto market, and the panelists were unanimously encouraged about the emerging pro-crypto environment. The GENIUS Act,² which was signed into law in July, lays the foundation for the U.S.’s significant role in creating a framework for payment stablecoins. The legislation creates a federal regulatory system for the crypto market and requires that payment stablecoins have 100% reserve backing with liquid assets.

The new environment has been transformative, boosting investment in the sector and helping to deliver a much-needed regulatory framework that will support growth at scale. “The floodgates are open now, and the pace of innovation is going up,” added Gernetzke. Overall, there was exuberance about the supportive government environment and its immediate impact in catalyzing the next phase of crypto evolution.
 

Everything will be tokenized

But what will that phase look like? The future of the crypto market is tokenization. The massive investment and innovation will ensure the widespread usage of the blockchain, with everything from home to healthcare data stored on the blockchain and opening the door for the monetization of just about every real-world asset.

Gernetzke’s firm Exodus is building products today to reflect that future reality, focusing on self-custody and disintermediating all of the intermediaries. In that reality, you could transfer anything from Tesla stock to your car title to the crypto market. “This will be possible for the masses at scale. That is the future we are looking at,” added Gernetzke.

AI will help chart the course to get there. While, in the future, everything will be stored on the blockchain, it will be run by AI agents that can complete transactions and process requests. In addition, all of the assets on the blockchain — all of the tokenized assets — will be backed by the dollar, cementing the dollar’s place as the world’s dominant currency. Adding AI will help to create a frictionless environment. “As you remove friction from the system, the velocity increases,” explains Thiel. “If you take friction out of the monetary system, stuff just moves a lot faster.”
 

A push for more regulation

The push for innovation has created a general excitement about the future of the crypto market — but it has also highlighted the need for more regulation. Regulatory adoption is critically important to the market’s growth. The Clarity Act³ is the current proposed legislation in Congress to create a transparent regulatory framework for digital assets. The legislation is up for vote in the fall, and all of the panelists were hopeful that it will pass. “If the Clarity Act isn’t passed, we are going to hit a hard wall. It will put a full stop on investment by large players,” said Thiel.

As the market evolves, there will likely be a flood of stablecoins that are used interchangeably — because they are all backed by the dollar — but that system will require regulatory oversight to manage correctly. The regulatory environment will help consumers feel confident to transact in a market where their money is protected. The panelists likened it to the National Banking Act of 1863 and 1864 that established the federal banking system and a national currency. “A regulatory system creates rules for the game, and it ensures that everyone plays by the rules,” said Simanson.
 

The technology is still rapidly changing

AI will transform the space in the near term. It will help push everything onto the blockchain and make it manageable. But looking even further into the future, quantum computers will be the next disruptor. Quantum computers will be able to hack into anything with access to the public key, even old Bitcoin wallets where the public key is known. Quantum resistance will emerge to protect digital information from quantum computers.

“You can implement quantum resistance today, but it is hugely expensive,” said Thiel, adding that quantum computers aren’t powerful enough yet to pose a threat, but it is coming.

It is a question, however, of when. While there is unanimous agreement among the panelists about the future of this space and its prevalence, Simanson said that it is more difficult to predict when it will happen. That makes investing challenging. “I’m a naysayer, because [while I agree that] all of this is real, how long does it take and what are the true utility values? What does it really sell? Is it a solution looking for a problem, or is it a problem you're solving,” said Simanson.

All eyes are on the crypto-asset market. Fueled by a governmental push for innovation, the promise of a regulatory framework and the widespread adoption of new technologies like AI that can help manage the space, digital assets are quickly becoming a financial standard.

To find out more about cryptology, tokenization, and blockchain in your financial strategy, reach out to a KeyBanc Capital Marketing FinTech Investment Banking professional today.