“An increased urgency for regulation may enable greater institutional engagement, and a shift in focus (and capital) from speculative trading to projects with real-world functionality and companies with roadmaps to profitability may accelerate industry maturity,” analysts Alkesh Shah and Andrew Moss wrote.
Regulatory frameworks for the crypto industry are critical for mainstream adoption, the report said, and a coordinated global effort is required to discourage regulatory arbitrage and to safeguard consumers and investors.
FTX’s collapse has refocused attention on the need for regulation that “creates a transparent legal framework for digital assets; fosters technological innovation; provides consumer and investor protections; and mitigates financial stability risks,” the note said.
The bank notes that the top 100 crypto tokens have fallen 64% year-to-date, but points out they are still up 2,175% since end-2016. The cost of ignoring digital assets is high, it said.
The development of blockchains that are smart contract-enabled and applications with real-world use has accelerated this year, the report said. Speculative trading may be widespread, but it's the “underlying blockchain technology driving this speculation that could be revolutionary.”
Bank of America says “retail and institutional disengagement” could further pressure crypto prices, but notes that digital asset prices fell 22% between Nov. 2 and Nov. 10 before rising 6% through Nov. 25, which shows that investors may be moving on and are focused on blockchain technology’s long-term disruption potential.