The crypto policy review for 2025 is in, and the headline is clear: Stablecoins have taken center stage. Over 70% of jurisdictions are progressing stablecoin regulation. But is this regulatory focus a sign of maturation, or a tightening noose? My analysis suggests it's a bit of both, with potential unintended consequences.
The TRM Labs report paints a rosy picture: "Increasing regulatory clarity also created major tailwinds for institutional adoption." And it's true, about 80% of the reviewed jurisdictions saw financial institutions announce new digital asset initiatives. But let's dig into the numbers. How many of these initiatives are actually using public blockchains, as opposed to permissioned, private networks? The report doesn't say. (This is the kind of detail that always gets buried in the press releases.) My gut tells me it's the latter, which means institutions are primarily interested in the idea of crypto, not the decentralized reality.
Stablecoins have become the “entry point for institutional adoption,” TRM claims, due to their “combination of value stability and blockchain-native efficiency.” That's a compelling narrative. But the regulatory response is telling. The US' GENIUS Act, the EU's MiCA, and new regimes in Hong Kong, Japan, Singapore, and the UAE all articulate standards for issuance, reserves, and redemption. What's the common thread? Control. Regulators want to ensure stablecoins behave like traditional fiat currencies. This inherently limits their "blockchain-native efficiency," which derives from permissionless, decentralized systems. Aren't they building a cage around what made stablecoins attractive in the first place?
The US is leading an “acceleration in crypto policymaking and friendlier regulatory attitudes toward digital assets." Really? The same US that just froze approvals for ultra-leveraged ETFs? That's hardly a ringing endorsement for innovation. It's more like a carefully managed experiment, with regulators constantly adjusting the parameters.
One has to think, are they more concerned with stifling innovation, or are they trying to make it safe for the average investor to get involved? The answer, of course, is both.
The report claims that robust crypto regulation continues to prove its impact on illicit finance. "TRM analysis found that virtual asset service providers (VASPs), which are the most widely regulated segment of the crypto ecosystem, have significantly lower rates of illicit activity than the overall ecosystem." This sounds great, but it's a classic case of correlation, not causation. Regulated VASPs should have lower rates of illicit activity. That's the point of regulation. The real question is: Where did the illicit activity go?
The report itself provides a clue: "This was underscored by North Korea’s record-breaking hack on Bybit in early 2025... The attackers laundered proceeds through unlicensed over-the-counter (OTC) brokers, cross-chain bridges, and decentralized exchanges — infrastructure that largely sits outside existing regulatory perimeters." So, the regulation is working... within the regulated space. But the bad actors are simply moving to the shadows.
I've looked at hundreds of these reports, and this dynamic is consistent. Regulation pushes illicit activity to unregulated corners. It's like squeezing a balloon: the air just moves somewhere else. The report acknowledges this, noting that "gaps and inconsistencies" in implementing standards could pose risks. But what's the solution? More regulation, of course! The problem is that total consistency is a pipe dream. Crypto is global and borderless. You can't regulate it all.
This is the part of the report that I find genuinely puzzling. The authors highlight the problem of regulatory arbitrage, then advocate for more regulation as the solution. It's a bit like saying, "The boat is leaking, so we need to add more water." The question we should be asking ourselves is, "is it the boat that is leaking, or is it the water we are putting into it?"
Meanwhile, back in the markets, Bitcoin is having a rough time. Despite rising open interest, the price continues to slide. One analyst notes that concerns about MSCI potentially excluding major crypto-holding companies (like Strategy) from global indices are adding pressure. This is a critical point. If major institutional players are forced to sell off their Bitcoin holdings due to regulatory concerns, it could create a negative feedback loop, further weakening market structure and liquidity. Crypto Market Update: Strategy Faces MSCI Index Removal, SEC Freezes Ultra-Leveraged ETF Approvals
The market update also mentions that Tether is getting heat from S&P Global, who cut its assessment of USDT’s peg stability. S&P pointed to weaker reserve quality, shrinking cash-equivalent holdings, and rising exposure to secured loans and Bitcoin as reasons for the downgrade. Tether, naturally, dismissed the rating as biased. But the numbers don't lie. Their Bitcoin holdings now exceed the cushion meant to absorb volatility, increasing the risk that a sharp price drop could leave the token undercollateralized.
This brings us back to stablecoins. They may be the "entry point for institutional adoption," but they are also a potential point of systemic risk. If a major stablecoin like USDT were to collapse, it could trigger a domino effect, impacting the entire crypto ecosystem. And with regulators focused on control, rather than genuine decentralization, they may be inadvertently creating a more fragile system.
The crypto market in 2025 is a strange beast. Stablecoins are boo
