Building trust: Transparency will drive crypto market growth

The crypto market is ripe with the potential to revolutionize the finance world, but a big obstacle is still getting in the way. That obstacle is trust. For any business, particularly in finance, transparency is the foundation of trust that needs to be treated with all due importance.

When people hand over their funds to a third party, they need to understand who is in charge and how things are regulated. It is also important for them to know where their cash is going. But without such clarity, how are they supposed to feel confident about trusting a company with their hard-earned money?

In the world of crypto, this issue is even more crucial. Unlike traditional financial markets, where regulations are well-established, the crypto industry is still a newcomer, unexplored in many ways, which makes it a prime target for various criminals and bad actors.

Just recall the collapse of the FTX exchange back in 2022—it’s a glaring example of how things can go wrong when transparency is ignored. What happened? When the company filed for bankruptcy, it came to light that FTX had mishandled user funds. Shady business practices and a lack of clear disclosure led to massive losses for investors and sent shockwaves through the entire crypto market. This scandal highlighted the urgent need for stricter regulations and greater oversight across the industry.

Transparency and regulation: How are they to mix?

Regulation is essential for the crypto industry to grow and be seen as legitimate. As more institutional investors show interest in digital assets, the need for clear and consistent rules also increases. Otherwise, they won’t feel confident about exploring new waters, never knowing when they might draw the ire of one watchdog or another.

With this in mind, a good regulatory framework should strike a balance between fostering innovation that comes with blockchain technology and protecting consumers, thus helping crypto gain broader acceptance.

Places like the Middle East, Singapore, and the European Union are already setting the pace with progressive regulations. For example, in April 2023, the European Union rolled out the Markets in Crypto-Assets Regulation framework, aiming to create a unified approach to crypto regulation across its member states. Around the same time, Hong Kong introduced a new licensing system for virtual asset service providers, requiring them to get a license from the Securities and Futures Commission.

Among the recent examples, the Monetary Authority of Singapore decided to tighten its AML/CFT regulations and introduce new requirements for crypto service providers. And the UK is also taking steps to get in on the action. In 2023, the government passed the Financial Services and Markets Bill, empowering itself to regulate crypto assets and stablecoins.

All these efforts are undeniably important for building trust, legitimizing the crypto market, and paving the way for mainstream adoption of digital assets.

However, making transparency a unified standard on a global scale is no small feat that is difficult to achieve. The borderless nature of crypto complicates things, requiring international cooperation in order to create comprehensive regulations. However, this cooperation is still fragmented as different regions interpret regulations in their own ways, making it tough for crypto firms to navigate multiple jurisdictions.

Barriers like these hinder innovation and growth in the industry, which is why improving regulatory consistency and collaboration will be crucial going forward.

Improving transparency, one company at a time

While global regulation remains a work in progress, that doesn’t mean individual companies can’t already take steps to boost trust in the market. How can they do it? The most straightforward way for them is to maintain open communication about their financial status and operations.

When stakeholders get timely and accurate information, it helps build credibility and ease fears among concerned parties. This is how users and investors can separate legitimate businesses from questionable ones.

It bears mentioning that the crypto media, unfortunately, tend to focus on the negative side of things—scandals, hacks, or overhyped coin offerings. On the one hand, it’s not hard to see why: such news attracts a lot of attention and readers, which is beneficial for media outlets. However, it also means that legitimate innovations often get overshadowed, and the industry faces a lot more skepticism that could be avoided.

This is why it’s important for crypto companies to proactively engage with the media and use various communication channels to share accurate information. Raising awareness of the public about the positive developments in crypto can build trust and make the industry overall less intimidating. By taking this course of action, companies can establish themselves as credible parties in the market, which, of course, would only be beneficial for their operations.

As far as what actual methods they can employ, there are several key ones to highlight. Firstly, by engaging with the media, companies can highlight achievements, innovations, and internal processes. This gives them a proper foundation that people can see and believe in. Secondly, businesses can promote their leadership through interviews and public appearances during industry events, showcasing their expertise and positioning themselves as thought leaders in the market. Lastly, by maintaining active social media profiles, companies can provide regular updates to their user base whenever something important comes up. Direct interaction with the target audience is also a powerful way to showcase a company’s openness.

The details of these approaches can differ depending on each company’s goals and how willing it is to be open with the public. The journey toward transparency is a complex one, and not all companies are ready for it from the get-go. It often takes time for the top management to build up to this point and achieve the necessary mindset, but these efforts are vital for the industry’s growth and maturation.

A transparent future is a trustworthy future

As the crypto market continues to evolve, ongoing efforts to enhance transparency and educate the public will be crucial in legitimizing this industry and driving mainstream adoption. Guardrails and restrictions will be necessary to protect consumers and ensure wider public acceptance.

In the long run, by combining effective communication with robust regulatory collaboration, the crypto industry can grow stronger and capture the interest of the global audience.

This article was co-authored by Su Carpenter and Valentina Drofa.