Bernstein analysts warn that political involvement in regulating cryptocurrency could discourage the decentralization of blockchain technology in the future.

The cryptocurrency market is currently in a critical growth phase that could significantly impact which blockchain technologies will be adopted by the mainstream. The fact that different countries are developing their own crypto policies is a clear indication that there is a need to update the decades-old financial systems. Notably, Europe, Hong Kong, Middle Eastern countries, El Salvador, and the Central African Republic have all implemented friendly crypto policies. However, the United States and Nigeria, among other countries, have been divided on crypto regulations.

Last week, the United States Securities and Exchange Commission charged Binance and Coinbase Global Inc (NASDAQ: COIN) with listing unregistered securities. SEC Chair Gary Gensler has argued that almost all crypto assets are unregistered securities, with Bitcoin being the exception. Interestingly, the Hinman documents, which have been used against the SEC in the Ripple lawsuit, depict that Ethereum was considered not a security by former top officials.

Bernstein Analysts on Crypto Regulatory Crackdown Dilemma

According to analysts at Bernstein, a private wealth management adviser focused on high net worth clients, the view that all crypto tokens, other than Bitcoin, are unregistered securities does not leave any room for blockchain networks to attain decentralization over time. Additionally, Bernstein analysts led by Gautam Chhugani think the classification of crypto tokens as securities does not leave room for tokens to have functional utility within the underlying networks.

“The core issue is whether countries should use securities laws framed decades ago without realizing blockchain networks’ very aim is to transform the decades-old financial and securities market systems, with more transparency, instant settlement times, disintermediation of middlemen, automation and reduced costs, global liquidity and interoperability,” Bernstein’s report noted.

The move by the United States SEC seems to have influenced the Nigerian SEC to regulate the crypto market in a similar manner. Last week on Friday, the Nigerian SEC ordered Binance Nigeria to cease operations for issuing trade of unregistered securities.

Combined, the United States and Nigerian governments control about half a billion people, which is more than 25 percent of global economic activities. Consequently, blockchains other than Bitcoin will have a challenging time ahead implementing the decentralization of their ecosystems.

Furthermore, Bernstein analysts concluded that the different crypto regulatory scope is splitting both the blockchain industry and countries into jurisdictions. Arguably, crypto projects could be forced to provide services in respective jurisdictions according to the different regulations.

Eventually, the fiat system will win through the Central Bank Digital Currencies (CBDCs) if the regulations continue to vary by jurisdiction. Nevertheless, the regulations in the blockchain industry were inevitable following increased scams and rug pulls. As a result, a faction of crypto enthusiasts has welcomed the crypto regulations as a means to mainstream adoption.

Nonetheless, blockchains will have a challenging time in the future rolling out their respective tokens as regulations get tighter.

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