Why Bitcoin Should Not Be Regulated Like Crypto

Photo by Jonathan Raa/NurPhoto via Getty Images

NurPhoto via Getty Images

Regulatory frameworks continue to treat bitcoin and other cryptoassets as a single category, a decision that has shaped how digital asset policy is drafted, applied and interpreted in several jurisdictions. As regulatory approaches develop, the debate increasingly focuses on regulatory design: how well existing frameworks accommodate systems that differ fundamentally in terms of structure, governance and risk.

The persistence of a unified classification of “cryptoassets” reflects how regulation often evolves in response to emerging technologies. Early policy responses tend to prioritize speed, consistency, and administrative clarity, particularly when markets move more quickly than formal rule-making processes. In the case of digital assets, superficial similarities such as the use of cryptography, digital wallets and online platforms have made broad categorization a practical starting point.

However, as regulatory frameworks evolve and move from high-level principles to detailed operational rules, the limitations of this approach become more apparent.

Bitcoin has now operated as a decentralized network for over 15 years, with no issuing entity, central governance structure, or discretionary monetary authority. In contrast, many other cryptoassets rely on identifiable development teams, ongoing issuance decisions, and intermediary systems for their operation and access.

In the United States, think tanks like the Bitcoin Policy Institute have developed detailed frameworks describing the unique attributes of Bitcoin, including its decentralized design and monetary characteristics to help inform policy and regulatory approaches distinct from other digital assets.

One practical consequence of regulating under a single framework is that it can smooth out distinctions in risk that regulators themselves attempt to communicate to consumers. In the UK, consultation responses highlighted situations where the regulatory framework treats a decentralized currency network and a highly speculative token as if they were in the same risk category, despite their very different characteristics, levels of issuer control and maturity. Even when the intention is caution, the effect may be to create consumer confusion, as the framework implicitly suggests that “cryptoassets” are interchangeable from a risk perspective, when in practice they are not.

These differences are structural and not philosophical. Modern financial regulation is based on assumptions of responsibility, control and organizational accountability. Disclosure regimes generally presuppose the existence of an entity capable of providing information, making representations and being held accountable for results. Control frameworks often depend on intermediaries who can be approved, monitored and sanctioned if necessary. When these assumptions are applied to a decentralized network without a central operator, the adjustment is not always straightforward.

This tension becomes more visible when rules designed for issuer-directed assets are applied uniformly to all digital assets. Requirements related to disclosure, governance, and ongoing compliance may be well suited to tokens issued by corporations or foundations, but they may be difficult to interpret or implement in the context of a permissionless network. The result is regulatory friction where rules struggle to clearly fit the systems they are intended to govern.

Cryptoasset lending and borrowing provides a useful case study for how these frictions arise during implementation. Traditional consumer credit rules are designed around unsecured borrowing, affordability assessments, arrears and forbearance, with the aim of reducing the risk of default and protecting borrowers from unaffordable debt. In contrast, many Bitcoin-backed loan models are structured around collateral, short durations, and automatic liquidation when loan-to-value thresholds are exceeded. In this context, a framework designed for missed repayments and payment plans may struggle to clearly accommodate a product where the main risk for the consumer is often the liquidation of collateral during market movements rather than the inability to repay a debt in the traditional sense.

Recent political consultations illustrate this challenge. Responses from industry players and policy groups have increasingly focused on classification and function rather than market behavior. These arguments do not argue for no regulation, but rather for greater precision in how different digital asset systems are defined and valued. The emphasis is on aligning regulatory obligations with observable risk characteristics, governance models and modes of operation, rather than applying uniform requirements.

Su Carpenter, executive director of CryptoUK, told Forbes “As the UK develops its regulatory framework for cryptoassets, it is increasingly clear that not all cryptoassets pose the same risks or operate in the same way. distinctions by regulators if the UK is to remain a competitive and credible jurisdiction.”

Several responses argue that a more risk-informed approach would distinguish between the asset used and the activity proposed, rather than applying restrictions to an entire category.

The problem also extends beyond disclosure and surveillance. Supervisory frameworks, reporting obligations and compliance regimes are often designed around account-based systems and mediated financial relationships. Applying these models to bearer assets or peer to peer networks can raise practical questions about feasibility, proportionality and effectiveness. These questions are increasingly relevant as regulators seek to balance the goals of consumer protection, market integrity and financial stability.

Another recurring point in consultation comments is that restrictions on regulated domestic businesses do not necessarily reduce their activity; they often change the location where this activity takes place. When domestic providers face stricter bans or disproportionate compliance burdens, consumers who still want access to certain products may migrate to offshore locations or decentralized protocols that fall outside the regulator’s direct reach. In practice, this can weaken consumer protection by shifting the use of supervised companies to environments with less transparency, fewer guarantees and limited remedies in the event of failure.

At the same time, there are signs that regulatory thinking is starting to more clearly differentiate between types of digital assets. Discussions around custody standards, settlement processes, and energy consumption increasingly treat Bitcoin as distinct from other cryptoassets. In some cases, regulatory documents now refer to different risk profiles and operational characteristics, even where formal frameworks remain general in scope. This change is incremental rather than comprehensive, but it reflects a growing recognition that a single category cannot adequately reflect the diversity of systems now operating under the umbrella of “cryptocurrency.”

It is important to note that this is not a debate about innovation versus regulation, nor the merits of one asset versus another, but rather a question of regulatory design. Effective regulation depends on accurate classification, particularly as rules become more granular and enforcement more active. When classifications mask significant differences, the risk is that regulation becomes either too inclusive or ineffective, imposing burdens that do not address real risks and fail to account for those who do.

The consequences of this approach are already visible in the United Kingdom. Freddie New, policy director at Bitcoin Policy UK, said: “Right now in the UK, consumers new to the space are being presented with a universe of thousands of coins, which – as the regulator tells them – are also worthless. This includes both Bitcoin and every meme coin in existence, and the message the FCA is sending to consumers arguably puts them at great risk of harm if they invest in a worthless meme coin rather than the digital asset equivalent of a trading company. first order.”

As governments and regulators continue to refine their approaches to digital assets, the challenge may lie less in how quickly frameworks are implemented and more in how accurately they reflect the systems they seek to regulate. As digital asset systems continue to diverge, the question of whether the “cryptoasset” category remains fit for purpose has become a question of regulatory efficiency, not ideology.