Crypto Regulation Could Unleash Institutional Liquidity

As US lawmakers advance new digital asset rules, many on Wall Street see crypto regulation as the missing link for unlocking large-scale institutional participation.

Benchmark sees historic shift in US digital asset oversight

Wall Street broker Benchmark believes this week could mark the beginning of the end of crypto‘s long regulatory limbo in the U.S.. Senate committees are preparing to vote on a market structure bill that would define how digital assets are regulated and supervised.

According to the broker, Senate action could end years of regulatory uncertainty and unlock deep institutional liquidity. Moreover, Benchmark argues that clear market-structure rules would reduce classification risk and support more sustainable valuations across the sector.

The report highlights Galaxy Digital and Coinbase as particularly well positioned to benefit from clearer rules, given their institutional-focused platforms. That said, any comprehensive framework is likely to impact the entire ecosystem of exchanges, custodians and infrastructure providers.

Why clarity on crypto rules matters for institutions

The broker views regulatory clarity as the key prerequisite for broad institutional adoption of both individual tokens and crypto-related equities. The report states that such clarity would unlock a level of liquidity that only institutions can provide, supporting more durable and transparent price formation.

In fact, the note emphasizes that liquidity is the foundation upon which sustainable crypto valuations are built. However, without predictable oversight and a stable legal regime, large investors have remained cautious about deploying significant capital into the asset class.

Benchmark also links regulatory progress with the evolution of custody, compliance and trading infrastructure. Clear standards in these areas would allow regulated intermediaries to operate at scale, reinforcing the feedback loop between institutional participation and deeper liquidity.

Years of fragmented oversight and enforcement

In recent years, the U.S. has struggled to establish a coherent regulatory framework for digital assets. Jurisdictional disputes, shifting enforcement priorities and persistent uncertainty have weighed on both firms and investors.

Under a previous administration, the SEC pursued aggressive enforcement actions, often treating many digital assets as unregistered securities. Moreover, the Commodity Futures Trading Commission and banking regulators advanced competing visions, leaving market participants unsure which rules applied in specific cases.

This fragmented approach created a high level of crypto classification risk. Companies faced the possibility that assets or business lines could later be redefined by regulators, exposing them to retroactive penalties or forced changes in business models.

Legislative gridlock and its impact on innovation

Legislative efforts to clarify market structure and asset classification have stalled until now, despite growing pressure from industry and investors. As a result, innovation and institutional participation slowed, amid fears of regulatory rug pulls and unpredictable enforcement shifts.

Benchmark argues that the new Senate initiative could finally provide a durable statutory basis for oversight. However, the broker also notes that the legislative process will likely involve negotiation between the House and Senate, as well as ongoing dialogue with regulators such as the SEC and the CFTC.

Even so, the prospect of a comprehensive digital asset market structure bill has already shifted sentiment, suggesting that the policy environment may be entering a more constructive phase for the industry.

Asset classification, custody and compliance at the core

According to Benchmark, clear rules around asset classification, custody and compliance would encourage regulated intermediaries to commit capital. That capital could unlock deeper liquidity capable of supporting more durable valuations across the digital asset market.

The report stresses that liquidity is the foundation for sustainable price discovery and long-term growth. Moreover, a transparent framework would give institutional investors a clearer understanding of which products fall under securities rules versus those treated as commodities.

Within this context, the broker expects that a well-designed crypto market structure bill 2025 could serve as the basis for long-term regulatory stability. While details remain subject to congressional debate, the direction of travel appears more supportive than in previous years.

Interplay between regulation and market conditions

The broker also points to improving market conditions following the Oct. 10 flash crash, which disrupted crypto market-making. Liquidity conditions have since stabilized, and Benchmark argues that healthier markets and regulatory progress can reinforce each other over time.

However, the firm cautions that legislation will not eliminate volatility in digital assets. Instead, it would materially reduce classification risk by delineating when tokens fall under securities regulation overseen by the SEC versus a commodities-style regime under the CFTC.

In that scenario, a clearer split between securities and commodities oversight would allow platforms like Coinbase and Galaxy Digital to plan product development and compliance strategies with greater confidence, potentially amplifying institutional crypto liquidity.

The potential turning point for crypto regulation

Benchmark concludes that the current Senate initiative may represent a decisive moment for crypto regulation in the U.S.. If lawmakers can pass a comprehensive framework, it would mark the end of a long period of uncertainty that has constrained institutional adoption.

Ultimately, the broker sees regulatory clarity, deeper liquidity and institutional engagement as mutually reinforcing trends. As the legislative process unfolds, the digital asset industry will be watching closely to see whether this effort finally delivers the stable rules needed for sustainable, long-term growth.