The Encryption Divide: How Regulatory Cracks Are Reshaping Tech Valuations

Eli GrantWednesday, Jun 18, 2025 11:47 pm ET
38min read

In an era where encrypted messaging platforms like Telegram have become digital battlegrounds for geopolitical tensions, the global regulatory landscape is tightening. From Malaysia's first-ever legal injunction against a social media provider to France's high-stakes encryption dispute and Ukraine's cybersecurity crackdowns, governments are signaling that non-compliance will no longer be tolerated. For investors, this means one thing: platforms that fail to align with evolving regulatory demands face valuation downgrades as operational risks and compliance costs escalate.

Case Studies in Regulatory Escalation

Malaysia: A Precedent for Platform Accountability
On June 19, 2025, Malaysia's Communications and Multimedia Commission (MCMC) secured an interim injunction against Telegram, targeting two channels accused of spreading content that “eroded public trust” and violated the Communications and Multimedia Act 1998. This marked the first such action against a social media provider in Malaysia, sending a stark message: platforms must act decisively or face judicial consequences. The move, framed as a “last resort,” underscores regulators' growing impatience with encrypted apps that host harmful content.

France: Encryption's Tug-of-War
In France, Telegram's CEO, Pavel Durov, faces criminal charges tied to enabling organized crime. His arrest in 2024 triggered a dramatic shift: Telegram's compliance with French data requests surged from 4 cases in Q1 2024 to 673 in Q4 2024, affecting thousands of users. Yet tensions persist. French authorities demand access to encrypted communications to combat terrorism, while Telegram resists, warning of potential withdrawal if forced to compromise its end-to-end encryption. This standoff highlights a fundamental clash between privacy rights and national security—a battle with no easy resolution.

Ukraine: Cybersecurity as a National Imperative
Ukraine's Computer Emergency Response Team (CERT-UA) has documented cyberattacks exploiting encrypted platforms like Signal and Telegram to steal sensitive data. While Ukraine has not banned Telegram outright, it has restricted its use on government devices due to risks of Russian-linked espionage. Meanwhile, Signal's alleged refusal to assist Ukrainian law enforcement in addressing phishing attacks has strained trust. The result? A fragmented landscape where platforms face reputational damage and operational costs tied to geopolitical fallout.

The Investment Thesis: Compliance or Consequences

Valuation Pressures for Non-Compliant Platforms
The regulatory crosshairs are sharpening. Platforms like Telegram, which operate in a legal gray zone, now face three critical risks:
1. Legal Costs: Fines, lawsuits, and mandatory data-sharing obligations drain resources. France's CNIL alone imposed €89 million in sanctions in 2023–2024.
2. Operational Overhead: Complying with varying national regulations—e.g., Malaysia's injunctions or France's encryption demands—requires costly infrastructure and staffing.
3. Reputational Damage: Constant scrutiny erodes investor confidence. For instance, Telegram's $2 billion debt burden and Pavel Durov's ongoing legal battles cast a shadow over its valuation.

Favoring the Prepared
Investors should pivot toward platforms with robust compliance frameworks. Consider Signal, which, despite its non-cooperation allegations, maintains transparency and avoids geopolitical entanglements. Alternatively, companies like EviCypher, offering advanced encryption tools that balance privacy and compliance (e.g., NFC HSM technology), are positioned to capitalize on regulatory demands.

Ask Aime: How do companies like Telegram and Signal navigate the increasingly stringent global regulatory landscape, and what are the implications for investors in these platforms?

QNCX, OCG, AVPT Closing Price

Conclusion: The Compliance Arms Race

The writing is on the wall: encrypted platforms must choose between agility and accountability. Those that prioritize regulatory alignment—whether through adaptive encryption, transparent data-sharing protocols, or geopolitical neutrality—will thrive. Conversely, laggards will see valuations slip as costs rise and lawsuits multiply.

Investors, take note: the next wave of tech winners will be the ones that master the fine art of compliance without sacrificing innovation.

Andrew Ross Sorkin's perspective: A regulatory reckoning is coming. Stay ahead of the curve—or risk being left in the encryption dust.