The next significant transformation in the crypto world will not be marked by a new token standard or increased leverage. It will come from regulators gaining confidence in one another’s frameworks, allowing regulated markets to connect. This change is substantial. For years, crypto has experienced a geographic imbalance, with global liquidity often accumulating offshore, while regulated markets remained smaller and isolated within borders. As jurisdictions develop comprehensive rules on custody, asset segregation, market conduct, surveillance, and operational resilience, some regulated markets are becoming credible not only independently but also in relation to others. When regulations act as a connecting force, jurisdictions with similar supervisory models can rely on each other’s safeguards, supporting cross-border market infrastructure.
Regulation Matures to Support Collaboration
Historically, regulations in the crypto space were either premature, lacking depth, or inconsistent, hindering trust in another jurisdiction’s market framework. Initial rules primarily focused on registration, licensing, and basic anti-money-laundering controls. Currently, regulators are probing deeper into market integrity mechanisms. Questions arise regarding client asset handling, platform failure protocols, manipulation monitoring, conflict management, and governance standards. For example, Hong Kong’s Securities and Futures Commission has spent years developing a licensing regime for virtual asset trading, refining it with guidelines on custody and infrastructure. Similarly, Dubai’s VARA has crafted specific rulebooks for exchanges, broker-dealers, and market conduct. These frameworks define how a supervised crypto market should operate.
By defining these standards, jurisdictions demonstrate what regulatory approval entails in practice, offering other regulators a concrete framework to assess and build upon. While identical rules are not necessary for cooperation, compatibility in purpose, seriousness in scope, and credibility in enforcement are crucial. When regulators recognize a coherent system for custody, conduct, controls, and accountability elsewhere, collaboration becomes feasible. We are approaching a point where different jurisdictions align rigorously enough to stop treating each other as unknown risks.
Regulatory Equivalence and Liquidity Onshore
To appreciate the value of regulatory equivalence, consider the global crypto landscape. Offshore venues, operating with minimal oversight, have grown rapidly by bypassing national border frictions, aggregating global activities into large pools. Conversely, regulated markets have traditionally functioned as isolated entities. A licensed exchange in Hong Kong couldn’t connect its liquidity pool to a regulated broker’s order book in Dubai. However, the recent introduction of shared order book rules in Hong Kong is changing this, reducing liquidity pool fragmentation—a structural hindrance.
Regulatory equivalence bridges these isolated regulatory entities. When aligned jurisdictions recognize each other’s standards, regulated liquidity transcends national borders, facilitated by a network effect for compliance. As these markets interconnect, they gain necessary depth and competitive pricing to challenge offshore dominance. Building such bridges offers a high-liquidity alternative, keeping market activity within a system governed by clear rules, known supervisors, and defined protections.
Making Crypto Legible for Mainstream Capital
The shift to regulatory equivalence is essential for crypto’s integration into the global financial framework. Institutional capital requires a market characterized by legal clarity, enforceable safeguards, and predictable behavior during market stress. Terms like “settlement” and “custody” need to hold consistent, legally protected meanings across geographies.
Global markets do not need a single global authority. Instead, resilient financial systems are built on mutual recognition. The ultimate goal for crypto is a decentralized yet high-trust network, similar to a passporting system. Local authorities, like the SFC in Hong Kong or VARA in Dubai, would maintain sovereignty over domestic markets while acknowledging and “whitelisting” trusted peers. Each jurisdiction continues autonomous law-making and supervision, agreeing to treat a “trusted peer” as an extension of a safe harbor. If one regulator trusts another’s oversight of a platform, local investors can access it without redundant local licensing, preventing liquidity hoarding by opaque offshore entities. Activity spreads across transparent, regulated hubs interconnected globally. By promoting connections rather than isolation, regulators are creating a governable, resilient market prepared for the institutional stage.
Ben El-Baz is the managing director of HashKey MENA, where he leads HashKey’s licensed exchange entities in the Middle East and Europe.