Capital Ideas: Inside Crypto’s Institutional Shift And The Policy Gap Holding It Back, Eric Peterson Of Kraken Shares Perspective

Crypto markets have been volatile in recent weeks, but beneath the price action, a more important shift is underway. Institutional engagement with digital assets is not retreating.  It is maturing. And the policy debate is only beginning to catch up.

That was the central theme of ICAN’s latest Capital Ideas conversation with Eric Peterson, Kraken’s new Policy Lead and former Policy Director at the Satoshi Action Fund. Peterson offered a clear-eyed assessment of where crypto markets stand today and where regulation must go next.

Volatility Without Fragility

Peterson reframed the recent market pullback as fundamentally different from prior cycles. While prices have moved sharply, the institutional plumbing has held. There have been no exchange failures, no frozen withdrawals, and no loss of customer access. Liquidity remains strong and price discovery uninterrupted.

What markets are experiencing, he explained, is not crypto-specific distress but cross-asset liquidity pressure. Institutions facing losses in traditional markets are selling liquid assets – including crypto – to raise capital. In that sense, digital assets are behaving like a mature asset class embedded in global liquidity cycles, not a fragile speculative outlier.

Institutional Capital Is Sending a Clear Signal

Institutional investors are not waiting for perfect regulatory clarity. They are committing capital, building infrastructure, and shaping market structure in real time. Policy, however, still lags.

Peterson noted that many regulators continue to view crypto through a retail-speculation lens that no longer reflects market reality. That mismatch between how markets function and how regulation is designed remains one of the industry’s core challenges.

States as Incubators and Their Limits

Much of the policy progress to date has occurred at the state level. Like early securities regulation, states have acted as laboratories – defining digital assets, licensing businesses, and experimenting with frameworks. That experimentation has been valuable.

But digital assets are borderless by design. Peterson cautioned that a patchwork of bespoke state regimes ultimately creates friction, complexity, and consumer confusion. As with earlier financial markets, state innovation is likely to inform an eventual federal standard that provides uniformity, scale, and predictability.

The GENIUS Act and Stablecoins

The GENIUS Act’s state exemption for stablecoin issuers marks a meaningful inflection point. It recognizes the role states can play in fostering innovation while laying the groundwork for broader coordination. Stablecoin regulation may well coalesce at the state level before Congress finalizes a comprehensive federal framework.

For institutions, that matters. Stablecoins are increasingly central to payments, settlement, and liquidity management. Even partial clarity enables investment and infrastructure build-out.

Market Structure Is the Defining Issue

When asked where policy focus should turn next, Peterson was unequivocal: market structure.

At its core, the question is simple but consequential – what are digital assets, and who regulates them? Without clear answers, consumers face uncertainty, platforms face conflicting obligations, and innovation slows. Market-structure clarity is not about deregulation; it is about predictability, consumer protection, and responsible capital formation.

The Path Forward

The takeaway from ICAN’s conversation is not that crypto needs less regulation, but better regulation – regulation that reflects how markets actually function, recognizes institutional participation, and balances state innovation with federal coherence.

The markets are already moving. The question is whether policy will move with them.

Nick Morgan is President and Founder of ICAN, the Investor Choice Advocates Network, a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for everyday investors and entrepreneurs.  He was previously a partner in the Investigations and White Collar Defense Group at Paul Hastings law firm.  Morgan previously served as Senior Trial Counsel in the SEC’s  Division of Enforcement. Capital Ideas is a series created by Morgan and Dara Albright.