By Joshua Riezman & Raphael Landesmann.
The global crypto market is at a pivotal juncture, shaped by evolving regulatory frameworks and shifting political landscapes. MiCA¹ is poised to standardize crypto regulation across the EU. Meanwhile, Donald Trump’s election signals imminent changes to the SEC’s leadership and priorities. These developments could radically reshape the cross-Atlantic market structure, presenting both opportunities and challenges.
Current issues in the crypto market structure
Regulatory constraints to date have led to a reliance on venture capital funding coupled with airdrops as the standard model for capital raising and token distribution. This market structure has given rise to the low float and high fully diluted valuation (FDV) paradigm, where there is limited token supply and liquidity in secondary markets when tokens are made available to retail investors and community members. At that point, community members often enter at inflated valuations only to see token prices decline as large initial token holdings of early investors (including venture capitalists and other angel investors) vest over time. Meanwhile, those early investors may realize significant gains, exacerbating inequities in the ecosystem and undermining broader participation in token projects.
This dynamic distorts price discovery, exposes users and community members to significant volatility, and erodes confidence in token ecosystems. It also perpetuates a system where institutional investors capture the lion’s share of upside, leaving little room for ecosystem participants to benefit from early-stage growth. These issues have been exacerbated by restrictive regulatory environments in jurisdictions like the US, where retail investors are largely barred from participating in early-stage token offerings.
Learning from the ICO boom and bust
The Initial Coin Offering (ICO) boom of 2017-2018 demonstrated both the promise and pitfalls of crypto innovation. ICOs provided an unprecedented mechanism for startups to raise capital directly from retail investors, but they also led to fraud, misinformation, and market volatility. In the US, regulatory contraints – compounded by the SEC’s enforcement-heavy stance – further curtailed ICO activity and discouraged token issuers from engaging with their broader communities. This pushed token issuers to pivot toward venture funding, exacerbating the “low float/high FTV” issue, and sidelining community members and retail participants from early-stage growth opportunities.
In response to these challenges, platforms like Echo.xyz have emerged, offering structured environments for presales in order to make tokens available earlier to community members. However, participation often remains limited to sophisticated investors due to regulatory constraints, highlighting the continued need for broader regulatory clarity and a more inclusive framework that ensures all community members can participate fairly.
MiCA and the return of “ICOs”
MiCA offers a pathway to address these issues by providing a clear legal framework for token offerings, including ICOs. By standardizing requirements for whitepapers, disclosure, and consumer protection, MiCA could revive the ICO model that enabled broader retail participation, thus allowing projects to engage more directly with their communities. This approach could help to tackle the low float/ high FDV issue by enhancing liquidity, improving price discovery, and democratizing access to earlystage opportunities.
MiCA’s focus on transparency and compliance ensures that these offerings occur in a regulated environment, balancing innovation with investor protection. However, MiCA’s restrictive approach to market access for non-EU firms could pose a material risk to the growth of the EU cryptoasset market. Crypto is inherently global and borderless, yet MiCA risks creating a regulatory “walled garden,” which would reduce liquidity and consumer choice. If similar approaches are adopted globally, the market risks fragmenting into isolated ecosystems, undermining cross-border liquidity and decentralization. On the other hand, if jurisdictions adopt an open yet responsible attitude towards international businesses, the global cryptoasset market can become more robust and efficient.
The US remains a wild card
The US remains a wild card in the evolving crypto landscape. Under the current SEC administration, enforcement actions have largely stifled token issuances targeting ecosystem participants. A revamped SEC under Donald Trump is expected to provide much needed regulatory clarity, including potentially providing clear routes for token sales under the existing securities law framework, including Regulation A (Reg A) and Regulation Crowdfunding (Reg CF). Crucially, regulators must also clarify how utility tokens initially sold under that framework may be subsequently made available in the commodities markets to ensure liquid secondary markets.
This would address growing demand from retail participants, as evidenced by recent presales on platforms like Echo.xyz for projects such as MegaETH.² These presales highlight a clear appetite among users to access tokens at pre-public valuations, fostering a more inclusive market structure.
Balancing innovation and risk
While regulatory clarity can catalyze innovation, it also risks fragmenting the global market. Divergent approaches – such as Europe’s embrace of ICOs versus the US’s restrictive stance – could create competitive disparities. Projects may flock to jurisdictions with favorable regulations, potentially sidelining investors and community members in less progressive regions. Lessons from MiCA and platforms like Echo.xyz demonstrate that it is possible to design mechanisms that distribute upside more equitably without compromising market integrity.
Collaboration between jurisdictions that are committed to responsible innovation, and a focus on cross-border liquidity, are essential to avoid market fragmentation and to create a robust global crypto market. The stakes have never been higher.
This article originally appeared in GDF’s 2024 Annual Report, view the full report here.
¹ Regulation (EU) 2023/1114 of the European Parliament and of the Council of 31 May 2023 on markets in crypto-assets
² See https://www.theblock.co/post/330804/megaeth-funding-cobie-echo
