Building trust: Transparency will drive crypto market growth

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The cryptocurrency market has the potential to revolutionize the financial world, but there is still a major hurdle. That hurdle is trust. For any business, especially in finance, transparency is the foundation of trust that must be treated with all due importance.

When people hand over their money to a third party, they need to understand who is responsible and how things are organised. It’s also important that they know where their money is going. But without such clarity, how can they feel safe trusting a company with their hard-earned money?

In the crypto world, this issue is even more important. Unlike traditional financial markets where regulations are well established, the crypto industry is still a new sector and unexplored in many ways, making it a prime target for various criminals and bad actors.

Just remember the FTX exchange crash in 2022; a clear example of how things can go wrong when transparency is ignored. What happened? When the company filed for bankruptcy, it was revealed that FTX had mismanaged user funds. Shady business practices and a lack of clear disclosure led to huge losses for investors and sent shockwaves through the entire cryptocurrency market. This scandal highlighted the urgent need for stricter regulation and increased oversight across the industry.

Transparency and regulation: How to bring them together?

Regulation is essential for the crypto industry to grow and be seen as legitimate. As more institutional investors take an interest in digital assets, the need for clear and consistent rules increases. Otherwise, they won’t feel safe exploring new waters and never know when they might incur the wrath of a regulator.

With this in mind, a good regulatory framework should strike a balance between encouraging innovation that comes with blockchain technology and protecting consumers, thereby helping cryptocurrencies gain wider acceptance.

Places like the Middle East, Singapore, and the European Union are already setting the pace with progressive regulations. For example, the European Union introduced the Crypto Assets Regulation framework in April 2023, 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 that requires them to obtain a license from the Securities and Futures Commission.

Among recent examples, the Monetary Authority of Singapore has decided to tighten AML/CFT regulations and introduce new requirements for crypto service providers. And the UK is also taking steps to get in on the action. The government is giving it the authority to regulate crypto assets and stablecoins by passing the Financial Services and Markets Bill in 2023.

The importance of all these efforts in terms of building trust, legitimizing the cryptocurrency market, and paving the way for mainstream adoption of digital assets cannot be denied.

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

Such barriers hinder innovation and growth in the sector, so improving regulatory consistency and collaboration will be crucial in the future.

Increasing transparency, one company at a time

While global regulations are still a work in progress, that doesn’t mean individual companies can’t take steps now to increase market confidence. How can they do this? The simplest way for them is to maintain open communication about their finances and operations.

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

It’s worth noting that crypto media, unfortunately, tends 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 readership, which is beneficial for media outlets. However, it also means that legitimate innovations are often overshadowed, and the industry faces much more skepticism than could have been avoided.

Therefore, it is important for crypto companies to proactively engage with the media and use various communication channels to share accurate information. Raising public awareness of positive developments in crypto can build trust and make the industry less scary overall. By taking this course of action, companies can establish themselves as trusted parties in the market, which will of course only benefit their operations.

In terms of the actual methods they can use, there are a few important ones to highlight. First, companies can engage with the media to highlight successes, innovations, and internal processes. This provides a solid foundation for people to see and believe in. Second, businesses can promote their leadership through interviews and public appearances during industry events, showcase their expertise, and position themselves as thought leaders in the market. Finally, by maintaining active social media profiles, companies can provide regular updates to their user base when something important comes up. Direct engagement with their target audience is also a powerful way to showcase a company’s openness.

The details of these approaches can vary depending on each company’s goals and how open they are willing to be to the public. The path to transparency is complex, and not all companies are ready for it from the start. It often takes time for senior management to get to this point and achieve the necessary mindset, but these efforts are vital to the growth and maturation of the industry.

A transparent future is a reliable future

As the crypto market continues to evolve, ongoing efforts to increase transparency and educate the public will be crucial to legitimizing the industry and encouraging mainstream adoption. Barriers and restrictions will be necessary to protect consumers and ensure broader public acceptance.

In the long run, by combining effective communication with solid regulatory cooperation, the crypto industry can become even stronger and attract global audiences.

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

Su Carpenter and Valentina Drofa

Su Carpenter is the executive director of CryptoUK, the UK’s self-regulatory trade association for the digital asset industry. Su has an extensive background in marketing, communications, community programs and event management, working across traditional finance, challenger banks, fintech and crypto. Her roles have included global mandates and strategies for large corporates, as well as implementing launch programs for start-up technology businesses. Su has a strong interest in the crypto industry and believes that the UK provides and fosters a wealth of experience and opportunity for the sector to grow and thrive.

Valentina Drofa is the co-founder and CEO of Drofa Comms, an international PR consultancy company specializing in the finance and fintech sectors. She is a global entrepreneur and business leader with over 15 years of experience in the financial market. She is a financial market consultant with a PhD in economics and the author of several books on financial literacy.