How strict regulation limits the crypto market and forces it to evolve
Since the emergence of Bitcoin, cryptocurrencies have evolved from niche instruments to a market gradually integrating into the traditional financial system. Banks, asset management companies, and institutional investors have entered the industry alongside increasing regulations that limit the key characteristic of digital assets—independence from intermediaries and the state.
This process manifests differently across jurisdictions. For instance, in Russia, it has taken one of the strictest forms, attempting to integrate cryptocurrencies into a fully controlled domestic framework.
We explore the viability of such a model and whether state pressure can push the industry towards development.
A Stick Without a Carrot
By 2026, even in jurisdictions with relatively lenient regulations, cryptocurrencies will be allowed only if integrated into a verifiable and managed infrastructure. In countries where oversight is initially built on a stricter model, discussing the basic principles of the industry becomes nearly impossible.
A striking example is Russia. On April 1, the government submitted a draft federal law “On Digital Currency and Digital Rights” to the State Duma, which aims to integrate cryptocurrencies into the domestic framework. Under this model, assets are incorporated into a licensed infrastructure with mandatory intermediaries, accounting, identification, and the possibility of forced collection.
According to the document, buying and selling cryptocurrencies in Russia will only be possible through a regulated third party; a digital depository will be created for storage and accounting. In such conditions, free circulation is virtually non-existent, and the fundamental principle of the global industry—"not your keys, not your coins"—effectively loses its meaning.
As noted by Olga Zakharova, head of the legal department at PLAN B, in a comment to ForkLog, access to the market will depend on the investor's status, and the ability for anyone to engage in P2P trading will disappear.
“It seems that the adoption of the law will mark the 'twilight' of the era of crypto enthusiasts,” the expert believes.
Zakharova also added that some market players will likely “go underground.” Those remaining will have to restructure their processes to comply with regulations, which will incur both operational and financial costs, she concluded.
As a result, Russian users will have a narrow set of approved tools pre-selected by the state and will likely face rising service costs due to reduced competition and the need to cover expenses. Concurrently, some operations may shift to the gray zone, potentially impacting the practical sustainability of the model—it's unlikely that market security can be enhanced while keeping users within the legal framework.
Vladimir Sobinsky, head of the digital currencies and digital financial assets practice at PLAN B, believes that the proposed model by authorities could be viable: it addresses one of the crypto market's issues—unsafe asset purchases through P2P.
“On P2P platforms of major exchanges, there have always been scammers who periodically sent users dirty fiat or tricked them with 'AML checks.' Now, this will be a straightforward process; you can buy crypto directly in the bank's app,” explained Sobinsky to ForkLog.
However, having just the advantage of safe asset purchases is clearly insufficient. Danila Sadovsky, an IP/IT lawyer at BBNP and an expert in crypto asset regulation, noted that the success of the proposed rules depends on the presence of economic incentives for legalization.
“An infrastructure is being created, but it is still unclear how the legal framework is objectively better than self-storage in familiar wallets. Without a 'carrot,' strict barriers do not act as an incentive for legalization but rather as a catalyst for moving into the gray zone,” the expert noted.
In his opinion, protecting market participants is necessary, but it should not turn into excessive restrictions on the informed risk of investors. Otherwise, users will migrate to platforms where the level of protection is lower and the risks are higher.
Problems Persist
For retail investors, regulation may indeed reduce entry risks. However, this effect only works within the local framework, while the fate of larger market participants is less clear.
According to Sadovsky, the only area where the model can work “here and now” is cross-border settlements. For businesses, a legal channel with cryptocurrencies presents an opportunity to bypass economic restrictions, the expert noted.
However, this same area also proves vulnerable. Vladimir Sobinsky stated that potential “marking” of assets as sanctioned will significantly limit opportunities for working with foreign counterparties.
“Our market will be quite closed. It is unlikely that we will see major exchanges trying to obtain our license, as happened in Kazakhstan. This is largely due to sanctions against Russia,” Sobinsky concluded.
Thus, while formal regulation makes operations more transparent and controllable, it simultaneously complicates interactions with the global market. In such conditions, some foreign players may prefer not to cooperate directly with Russian infrastructure to avoid additional risks.
As a result, part of the market will seek ways to operate outside legal frameworks—through shadow exchange schemes, decentralized solutions, and other tools that allow access to liquidity while reducing dependence on local infrastructure. The key question is no longer whether the market will become formally more regulated, but rather what share of real activity the state will manage to retain within this system.
In Summary
Global regulation has made cryptocurrencies acceptable for large capital and the state, but it has also altered their fundamental meaning: where mass users appear, the market becomes licensed, de-anonymized, and integrated into the familiar legal perimeter.
In the Russian model, this process has been taken to extremes—with limited access, mandatory intermediaries, and a high level of control. It is possible that for some users, such frameworks will indeed simplify entry and reduce risks. However, there will also be those for whom operating in such a closed ecosystem is unacceptable.
This is the main effect of strict regulation: it does not eliminate the demand for privacy, self-ownership, and access to global liquidity, but merely pushes it outside official boundaries. State pressure will inevitably accelerate the development of decentralized services, circumvention mechanisms, and infrastructure that preserves the original logic of the market.
Ultimately, the crypto industry will cease to be a unified environment. One part will be integrated into the financial system and understood by the state, while the other will remain a space for those willing to take on more risk and responsibility for independence, access to the global market, and liquidity.
Text: Alisa Ditc