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The resurgence of the virtual assets sector following the crypto winter
The virtual assets sector is experiencing a robust recovery following the significant downturn known as the “crypto winter” of late 2022. This resurgence is driven by a renewed influx of both institutional and retail investors, signaling a growing confidence in the market. Regulatory bodies in key jurisdictions, including The Bahamas, Bermuda, BVI and Cayman Islands, are supporting this revival by refining their registration and licensing frameworks to enhance governance and investor protection.
Overview of the recovery
The virtual assets landscape has seen a remarkable rebound since the downturn, which was marked by high-profile bankruptcies and a dramatic decline in cryptocurrency valuations.
The proactive regulatory measures adopted by early movers in this space have been instrumental in fostering a supportive environment for innovation and growth. As these jurisdictions update their regulatory frameworks, they aim to provide clarity and stability, which are essential for entrepreneurs looking to establish and expand their businesses.
Regulatory developments
The Bahamas, Bermuda, BVI and Cayman Islands have long been recognized as leaders in virtual asset regulation. Their frameworks are designed to balance the need for oversight with the encouragement of innovation, attracting a diverse range of entrepreneurs and investors. The recent challenges posed by the crypto winter have prompted these jurisdictions to strengthen their regulatory regimes, confirming they are equipped to handle future market fluctuations.
For instance, The Bahamas was one of the first countries to implement comprehensive legislation governing digital assets through the Digital Assets and Registered Exchanges (DARE) Act, 2020. In November 2022, following the collapse of Bahamas-domiciled FTX Group, the Securities Commission of The Bahamas (SCB) acted swiftly to freeze the cryptocurrency exchange’s assets and appoint provisional liquidators.
The SCB’s rapid response played an important role in enabling several successful fraud prosecutions and a US court-ordered reorganization that recovered the majority of creditors’ funds. The Bahamas financial regulator’s actions not only safeguarded creditors but also underscored the importance of robust regulatory frameworks in mitigating risks associated with the virtual assets sector.
Lessons learned from the crypto winter
The events of the crypto winter served as a critical stress test for the regulatory frameworks in these jurisdictions. The fallout from the FTX collapse highlighted the necessity for sound governance, transparency and strong internal controls. In response, regulators have taken significant steps to enhance their frameworks, focusing on areas such as liquidity management and the safeguarding of customer funds.
As a result, confidence in the virtual asset industries of The Bahamas, Bermuda, BVI and Cayman Islands has rebounded, with increased investment and innovation. The global consensus on the need for regulation is growing. Respondents in the EY-Parthenon/Coinbase 2025 Institutional Investor Digital Assets Survey rank regulatory uncertainty as their greatest concern when investing in virtual assets, while they see greater regulatory clarity as the most important catalyst for industry growth.