The Institutional Series: Regulation as the Starting Gun
For much of digital assets' institutional history, regulatory uncertainty was the objection that sat behind every other objection. That is now changing. Not uniformly across jurisdictions, nor without significant gaps, but sufficiently to alter how institutions approach the asset class.
Regulatory uncertainty is a particular kind of risk. It is not simply the possibility of an adverse outcome, but the inability to establish with confidence which rules govern an activity, how those rules will be interpreted, or whether an arrangement that is permissible today will remain so tomorrow.
Institutional investors are accustomed to managing risk. Market, credit, liquidity and operational risks can be assessed, quantified and incorporated into an investment framework. Regulatory uncertainty of the open-ended variety presents a different challenge. An investment committee can determine whether an expected return justifies a particular level of risk. It cannot as easily approve an activity when the institution is unable to establish whether that activity is permissible or how it should be governed.
For much of the past decade, this has been a central obstacle to institutional participation in digital assets. The issue was not necessarily explicit prohibition but was more often the absence of sufficiently established rules against which legal, compliance and risk functions could evaluate a proposed investment or service provider.
Institutional capital does not move solely because a portfolio manager identifies an attractive opportunity. It moves when the wider organisation can support that opportunity through its legal, regulatory, operational and governance arrangements.
The regulatory environment is now developing in ways that make this increasingly possible.
From Ambiguity to Framework
The most significant regulatory developments have occurred across three jurisdictions: the European Union, the United States and the United Kingdom. Each has taken a different approach and remains at a different stage of development, but the broader direction is consistent. Digital asset activities are increasingly being brought within recognisable regulatory frameworks.
The European Union: MiCA
The Markets in Crypto-Assets Regulation (MiCA) became fully applicable at the end of 2024, establishing one of the most comprehensive regulatory frameworks for digital assets in a major financial market.
Its significance extends beyond the individual requirements imposed on crypto-asset service providers. MiCA introduces authorisation, supervision, governance, capital and conduct requirements that institutional compliance functions can recognise and evaluate. A custodian, trading platform or other service provider operating within MiCA's scope can now be assessed against an established regulatory framework, rather than relying predominantly on contractual arrangements, voluntary standards or fragmented national requirements.
This does not mean that a MiCA-authorised provider is necessarily suitable for an institution. Regulatory authorisation is not a substitute for operational due diligence, counterparty assessment or commercial judgement. It does, however, establish a common starting point. Importantly, MiCA remains a developing framework. It does not provide a complete, standalone regulatory regime for every staking arrangement or decentralised financial activity. In September 2026, the European Securities and Markets Authority called for changes to MiCA to address emerging services, including staking, lending and borrowing, recognising areas where the existing framework requires refinement.
This is characteristic of regulatory development. An initial framework establishes the perimeter, with subsequent guidance and legislation determining how more specialised activities operate within it.
The United States
In the United States, the shift has been more fragmented, but in certain respects equally significant.
One early development was the reversal of Staff Accounting Bulletin 121 (SAB 121). Introduced by the Securities and Exchange Commission in 2022, SAB 121 required entities safeguarding crypto-assets for customers to recognise corresponding assets and liabilities on their balance sheets.
For banks considering digital asset custody, this created significant accounting and potentially prudential consequences, adding to the economic and operational challenges of providing the service. Its rescission through SAB 122, effective January 2025, removed an important obstacle. Alongside subsequent guidance from banking regulators clarifying permissible custody and related activities, it improved the environment in which regulated banks could evaluate digital asset services.
It is an important shift, although removing an accounting requirement leaves the wider prudential, operational and supervisory obligations of custody in place. What it does is let regulated institutions assess the activity within a more workable framework.
Legislative developments have been equally consequential.
The GENIUS Act, signed into law in July 2025, established a federal regulatory framework for payment stablecoins. It introduced requirements relating to permitted issuers, reserve backing, supervision and financial crime compliance, with implementation following a phased timetable.
Stablecoins might appear somewhat removed from the investment case for digital assets, but their relevance to institutional market structure is considerable. They provide a means of transferring value, facilitating settlement and managing liquidity within blockchain-based financial arrangements. Establishing a clearer legal foundation for this infrastructure is therefore important to the development of institutional digital asset markets more broadly.
Progress on market structure legislation has been less straightforward.
The CLARITY Act, which passed the House of Representatives in July 2025, sought to address longstanding questions concerning the respective regulatory jurisdictions of the SEC and CFTC, alongside the treatment of digital asset intermediaries and trading markets.
Despite further negotiations and revised legislative proposals during 2026, the legislation failed to advance in a Senate procedural vote in September.
This is a reminder that regulatory progress is neither linear nor inevitable. There is growing recognition of the need for a comprehensive digital asset framework, but material disagreements remain concerning its scope, safeguards and implementation.
For institutional investors, the distinction between legislative progress and enacted legislation matters. Regulatory direction can inform strategic planning, but investment and operating decisions must still be grounded in the rules currently applicable.
The United Kingdom
The United Kingdom has followed a more gradual approach, initially focusing on financial promotions, anti-money laundering requirements and the treatment of specific regulated activities.
That position has developed materially. In June 2026, the Financial Conduct Authority published a substantial package of final rules and guidance for the future cryptoasset regime. Further guidance in September addressed the application of the regulatory perimeter to activities including safeguarding cryptoassets and arranging cryptoasset staking.
The new regime is expected to commence in October 2027, with firms already able to begin the authorisation process.
This is particularly relevant to institutional service providers. It provides greater clarity on how activities that have developed outside the traditional financial services framework will be supervised, and the standards providers will be expected to meet.
For institutions accustomed to dealing with FCA-regulated counterparties, this makes the evaluation of digital asset service providers more familiar. It also creates a clearer path for providers seeking to operate within established institutional expectations.
As in Europe, the details will continue to evolve. What matters is not that every regulatory question has been resolved, but that the framework within which those questions can be answered is becoming substantially more developed.
What Regulatory Clarity Actually Changes
Regulatory clarity does not make digital assets a better investment. It does not improve the underlying economics of a blockchain network, alter the reward characteristics of staking or eliminate the risks associated with digital asset markets.
An unattractive investment does not become attractive simply because it operates within a more established regulatory framework. What changes is the institution's ability to evaluate and implement the investment.
There are three distinct questions that institutions must address:
The first is whether they can participate. This is principally a legal and regulatory question. Is the proposed activity permissible? What obligations attach to it? Can the institution obtain the necessary approvals, and can the relevant counterparties operate within the applicable framework?
The second is whether they should participate. This is an investment question. Does the asset or strategy offer an attractive expected return relative to its risks? What role might it serve within a portfolio? How does it compare with alternative uses of capital?
The third is how they participate. This is an operational and governance question. Which entities hold the assets? Who executes transactions? How are risks monitored, rewards accounted for and service providers supervised? What contractual protections, controls and reporting arrangements are required?
Historically, digital asset proposals frequently struggled to progress beyond the first question.
The absence of regulatory clarity meant that institutions could not always establish a defensible basis for participation, irrespective of the underlying investment merits.
As regulatory frameworks develop, institutions can increasingly progress through all three questions in a structured manner.
The answer may still be no. An institution may conclude that the investment case is insufficient, the operational risks are unacceptable or the available service providers do not meet its standards. But it can reach that conclusion through an established decision-making process, rather than being prevented from considering the opportunity at all.
This is a significant change in the foundations of institutional capital allocation.
Inside the Institutional Decision
Consider a traditional asset manager evaluating an investment strategy involving digital assets and staking.
The investment team may begin with a relatively straightforward proposition: the institution wishes to obtain exposure to a proof-of-stake network and evaluate whether staking rewards provide an appropriate additional source of return.
The investment merits, however, are only one part of the assessment. The legal team must determine whether the proposed investment and staking arrangements are permissible within the relevant jurisdictions and investment mandates. Compliance must establish which regulatory requirements apply, including those affecting counterparties, outsourcing and ongoing oversight.
The custody arrangements must then be assessed. Who has legal control of the assets? What protections exist in the event of a service provider failure? How are assets segregated, transferred or withdrawn?
If staking is involved, additional questions emerge. Who operates the validator infrastructure? What are the consequences of slashing or prolonged network downtime? Who bears responsibility for operational failures? How are rewards calculated, distributed and reconciled?
The institution must also consider accounting, valuation, liquidity, reporting and governance requirements. Depending on the investment structure, administrators, auditors, fund boards and other service providers may need to become comfortable with the proposed arrangements.
None of these questions is particularly unusual in institutional finance.
Traditional financial markets have long relied on specialised custodians, administrators, investment managers, brokers, technology providers and risk functions, each operating within an established allocation of responsibilities.
What has been unusual about digital assets is the difficulty of mapping some of these activities into sufficiently clear regulatory and contractual structures.
Long-needed regulatory development is now gradually addressing that problem. Custodians can be evaluated against more established safeguarding standards. Staking arrangements can increasingly be assessed against specific regulatory requirements or supervisory guidance. Compliance teams have clearer frameworks for determining which activities are permissible and under what conditions.
The distinction between activities remains important. Custody, staking and investment management are not interchangeable, and their regulatory treatment may differ considerably. Nor does a regulated custody arrangement automatically confer regulatory approval on every activity performed in connection with the assets.
This is why the structure of an institutional digital asset arrangement matters as much as the individual entities involved. A collection of reputable service providers is a starting point. The objective is an integrated arrangement in which the responsibilities, risks and obligations of each participant are understood.
For institutions already operating within sophisticated governance frameworks, this is familiar territory. The challenge is applying those frameworks to a new set of assets, technologies and service providers.
Regulation as the Institutional Enabler
One of the less appreciated consequences of regulatory clarity is the change it creates within institutions themselves.
Compliance functions are frequently portrayed as obstacles to innovation. In practice, their reluctance to approve digital asset activities has often reflected an absence of sufficiently established rules, rather than opposition to the underlying technology.
Once the applicable framework becomes clearer, compliance teams can move from questioning whether an activity can be considered at all to determining the conditions under which it can be undertaken. Their role remains one of independent oversight, not investment advocacy. But a well-informed compliance function can help establish which structures are viable, which counterparties meet the institution's standards and which controls are necessary. The same applies to legal, operational and risk functions.
This creates an important distinction between institutions that are merely interested in digital assets and those developing the capabilities required to participate.
The difference often has little to do with allocation size or risk appetite. The latter are investing in the institutional infrastructure needed to evaluate and implement strategies when appropriate. In my experience, this is increasingly what separates serious institutional engagement from exploratory discussions.
After the Starting Gun
The regulatory progress of recent years is substantial, but important gaps remain.
The treatment of staking continues to depend on jurisdiction, service model and custody arrangements. Tax treatment and accounting practices can introduce additional complexity. Liquid staking tokens, decentralised financial activities and arrangements spanning multiple jurisdictions raise questions that are not always satisfactorily addressed by existing frameworks.
These issues matter, particularly for institutions whose legal and governance obligations require a high degree of certainty. They also demonstrate why the existence of a regulatory framework should never be treated as a substitute for specific legal analysis and operational due diligence.
The distinction, however, is that these questions increasingly sit within an identifiable regulatory environment. That is a materially different position from one in which an institution cannot establish a credible starting point for its assessment.
Looking towards 2027, the opportunity for institutions lies in building the capabilities required to make informed allocation decisions, ahead of the allocations themselves.
That means understanding the relevant regulatory frameworks, evaluating counterparties, establishing custody and operational arrangements, and ensuring that investment, risk, legal and compliance teams possess the expertise to assess digital asset strategies properly.
These capabilities take time to develop. They cannot be assembled instantly in response to a change in market conditions or the emergence of an attractive investment opportunity. Institutions that undertake this work will be better positioned to respond as markets and regulatory frameworks mature. That does not require an immediate investment, nor does it imply that every digital asset strategy warrants institutional participation.
For much of the past decade, regulatory uncertainty provided institutions with a defensible reason not to engage. Today, in an increasing number of jurisdictions, the rules are sufficiently developed for institutions to begin the analytical, operational and governance work necessary to reach an informed decision.
Regulatory clarity leaves the decision about participation with each institution, and gives it a proper framework in which to make it. That may prove to be its most important contribution to institutional adoption.
Next, the final chapter: What institutional crypto looks like in 2027 and the decisions worth making now.
