Market Structure
As Bitcoin (CRYPTO: BTC) hits new all-time highs and headlines, what institutions demand are trust signals; compliance is proving to be a non-negotiable frontrunner. In the mainstream financial sector, JPMorgan Chase & Co. (JPM), BlackRock Inc. (BLK), and other industry giants attracted that trust by developing strict, testable compliance programs. Now crypto is facing the same crossroads: treat compliance as a cost — or turn it into an advantage that draws capital.
84% of institutional investors expressed that regulatory compliance was their top concern when allocating to crypto, according to a 2025 survey, up from 72% in 2023. Moreover, 63% of them reported use of compliance tools such as transaction monitoring, AML, and KYC.
The third quarter of 2025 saw 28 billion net inflows, indicating that allocators are active when market structure and counterparties are managing risks. These will be credible only if custodians, service providers, and companies can meet institutional-grade compliance benchmarks.
NYDFS & FATF Signals: Real Time Risk Monitoring for Institutional Trust
Institutions are turning the page on “trust our company” marketing decks and relying on data-backed, verifiable monitoring; moreover, it’s actually written into supervision:
NYDFS extended blockchain analytics expectations to banks: The New York Department of Financial Services expanded blockchain analytics expectations to the banking sector, specifically including wallet screening, source-of-funds checks, around-the-system intelligence, and counterparty risk management. This guidance makes monitoring fall from “nice to have” into “expected controls.”
Global standard setters like FATF continue to tighten scrutiny: Latest FATF virtual asset updates point towards an ongoing lack of compliance with Travel Rule’s implementation and enforcement, marking an urgency in traceability and greater counterparty diligence.
This was how traditional finance earned its credibility. Custodians, brokers, and exchanges didn’t garner trust via marketing but rather by implementing controls that the market could test.
Institutions Are Watching: ETF Flows, Custody Revenue & Policy Changes
The “compliance advantage” in business results can already be observed in custody, scale, and scrutiny. BitGo’s sizable revenue gains, revealed in its recent IPO filing, show that revenues nearly quadrupled in the first half of 2025. This is a clear signal that institutions are betting their assets on providers that show controls and have auditable processes.
With spot ETFs maturing, ETF flows favor the safest and compliant infrastructures, concentrating in the vehicles with compliance systems built in design. IBIT’s market leading milestones provide a good proxy for this.
The SEC’s fast-tracked spot-crypto ETF listings also accelerate the trend to market and increase activity into regulated wrappers — where compliance is the cornerstone. Plainly put, capital is shifting to monitored sites and providers.
Institutional Counterparty Risk: Why Regulated, Monitored Crypto Firms Win
Regulatory symmetry: Pension funds, insurance companies, and banks need to show BSA/AML and sanction controls at their counterparties. Dealing with unmonitored crypto firms is just not the supervisory and reputational risk that they can afford.
Auditing: Real time on chain monitoring and wallet risk scoring make companies audit ready and far less vulnerable to sudden de-banking or delisting. FATF’s 2024 changes emphasize that the regulators will be watching whether the implementation is followed or not.
Liquidity access: Companies need liquidity from prime brokers, payment rails, and ETF ecosystem partners. However, they are gated based on who can demonstrate real-time monitoring—a necessary condition when flows are capable of moving billions within hours. ETF flow surges are proof of just how fast the institutional liquidity pools.
Reputational signaling: Having strong compliance systems in place signals public trust, and it’s not just another box to check. This is especially true in the case of crypto, where audit trails, third-party reviews, and incident transparency are paramount.
Operational Playbook: AML/KYC, Wallet Screening, Travel Rule
The playbook of successful crypto and blockchain service providers includes wallet screening and counterparty risk during onboarding, as well as ongoing monitoring, such as exposure to sanctioned or illicit clusters. Another cornerstone to implement is alerting, order-level surveillance that aligns with institutional policies such as thresholds, Travel Rule compliance, and anomaly detection.
Think holistic ecosystem surveillance — not just your customer, but also that customer’s counterparties, routings, and venues. This includes third-party verification consisting of regular external reviews and disclosure that investors can independently verify.
Consequences of Weak Compliance: De-Banking, Delistings & Lost Liquidity
Non-compliant businesses are the first ones to get cut off from banks and payment processors. This can lead to closing their bank accounts and blocking on and off-ramp payments. Another negative consequence of not implementing AML/KYC procedures is exchanges delisting their tokens.
They also lack support from market makers, as they don’t provide enough liquidity to such projects. Even worse, they give bad quotes. Count one more consequence to that list that ETF-related partners (custodians, administrators, authorized participants) won’t work with them.
The policy direction is clear: the regulators are shifting towards enforced standards. The capital markets (banks, brokers, custodians, payment networks, and compliance providers) are adapting rules and risk checks to match the policy standards more quickly than many founders and businesses realize.
Playbook for CEOs of virtual asset service providers
Transition from static audits to real-time monitoring with defensible policies and alerts. These are the guidelines the supervisors are already setting.
Release verifiable compliance dashboards, audit logs, and third-party reviews. Don’t expect that “transparency reports” with loose, vague claims will be of any help. Those reports won’t meet the standards of regulators and institutional partners, and they won’t protect your business.
Furthermore, proactively applying for licenses in well-regulated jurisdictions will keep your business safe. Receiving those licenses well in advance is a business advantage. Licenses give institutions a green light that your business meets their compliance standards.
Build compliance into the product itself. Big counterparties will treat compliance like a core feature when deciding to work with you.
Compliance isn’t just a tax on innovation — it is the multiplier. The companies that adopt monitored operations are the ones who will win partners, liquidity, and longevity in this next cycle.