Cryptocurrency Regulation and Governance Risk in Emerging Markets

The rise of cryptocurrency in emerging markets has been hailed as a disruptive force for financial inclusion and economic empowerment. However, beneath the surface of this innovation lies a critical challenge: the interplay of systemic corruption and legal ambiguity in crypto ecosystems. These factors not only undermine investor confidence but also erode the intrinsic value of digital assets, creating a volatile landscape for both retail and institutional participants.

Legal Ambiguity: A Barrier to Trust

Emerging markets often lack coherent regulatory frameworks to address the decentralized and borderless nature of blockchain technologies. In Indonesia, for example, legal systems struggle to handle cryptocurrency evidence in criminal cases, exposing gaps that hinder enforcement and create uncertainty for market participants [1]. This ambiguity is compounded by the absence of standardized procedures for interpreting blockchain-based agreements, such as smart contracts, which are immutable once deployed. Cross-border enforcement further complicates matters, as jurisdictional conflicts arise over applicable laws and dispute resolution mechanisms [6].

The result is a regulatory vacuum that leaves investors in limbo. Without clear guidelines on taxation, anti-money laundering (AML) compliance, or consumer protection, market participants face heightened risks. For instance, the collapse of Binance and FTX highlighted governance failures and transparency issues, revealing how weak oversight can lead to systemic fraud [2]. These cases underscore the need for robust corporate governance and risk management frameworks, which are often absent in jurisdictions with underdeveloped regulatory capacity [4].

Systemic Corruption: Eroding Institutional Integrity

Systemic corruption in crypto regulation exacerbates these challenges. In Nigeria, where cryptocurrency adoption has surged due to inflation and currency devaluation, unregulated actors have exploited the lack of a comprehensive legal framework to dominate the market and influence policy outcomes [4]. Similarly, in India, fragmented regulations have allowed certain entities to operate without oversight, creating opportunities for regulatory capture [4].

The U.S. experience offers a cautionary tale. Reports indicate that politically connected individuals have invested in or promoted specific cryptocurrencies, raising concerns about conflicts of interest and regulatory capture [3]. The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have faced criticism for weakening oversight, further deepening public distrust [1]. High-profile cases like the collapse of Celsius Network—a Ponzi-like scheme that endangered customer funds—highlight the risks of inadequate safeguards in markets where institutional trust is already fragile [4].

Investor Confidence and Asset Value: A Fragile Balance

The combined impact of legal ambiguity and corruption is a significant drag on investor confidence. Studies show that countries with higher perceived corruption see increased crypto adoption as an alternative to unreliable traditional systems [1]. However, this adoption is often accompanied by volatility and illicit activity. For example, in 2024, sanctioned entities and scams accounted for $45 billion in illicit crypto transactions, a figure that is likely to rise as more data emerges [2].

Investors in emerging markets are particularly vulnerable. The absence of clear regulatory frameworks means that even well-intentioned projects can be derailed by sudden policy shifts or enforcement actions. The ongoing legal battles in the U.S., such as SEC v. Ripple Labs and SEC v. Coinbase, illustrate how unresolved legal questions can create ripple effects globally, deterring investment and stifling innovation [3].

Pathways to Stability

Addressing these risks requires a multifaceted approach. Regulatory sandboxes—controlled environments for testing crypto innovations—can help emerging markets build capacity without stifling growth. International coordination is also critical, as cross-border challenges demand harmonized standards for AML, taxation, and consumer protection [4]. Additionally, strengthening institutional integrity through transparency initiatives and anti-corruption measures is essential to restore trust in regulatory bodies.

For investors, due diligence must extend beyond market fundamentals to include assessments of regulatory environments and governance practices. The future of crypto in emerging markets hinges on whether policymakers can balance innovation with accountability—a task that remains as complex as the technology itself.

Source:
[1] Legal Ambiguity in Handling Cryptocurrency Evidence [https://www.researchgate.net/publication/386064796_Legal_Ambiguity_in_Handling_Cryptocurrency_Evidence_Challenges_and_Solutions]
[2] Crypto Crashes: An examination of the Binance and FTX [https://www.sciencedirect.com/science/article/pii/S0890838925000344]
[3] Crypto in the Courts: Five Cases Reshaping Digital Asset Regulation in 2025 [https://katten.com/crypto-in-the-courts-five-cases-reshaping-digital-asset-regulation-in-2025]
[4] The Stablecoin Opportunity: How Businesses Can Capture Value in Emerging Markets [https://bitpowr.com/blog/the-stablecoin-opportunity-how-businesses-can-capture-value-in-emerging-markets]