AUSTIN (Texas) — Crypto innovation can be merged with regulation, four high-profile executives said during a lively panel discussion at Consensus2023.

BitGo CEO Mike Belshe and Kraken Managing Directors North America Guy Hirsch and Cboe Digital Presiden John Palmer, as well as Cumberland DRW Global head Chris Zuehlke, noted that smart regulations resulting in part from the 2022 debacle could benefit crypto, by giving companies more clear guidelines and increasing trust among the public.

Zuehlke stated that innovation and regulation do not have to be mutually incompatible. He added that the industry has already made considerable progress within a short time.

The industry is recovering from a disastrous year in which a number major crypto-focused companies imploded, and the trust in digital assets began to wane. The scrutiny of crypto by regulators, especially in the U.S. is unprecedented. Some observers think that the increased scrutiny could harm the growth of the industry or shift the power balance outside the U.S. Panelists talked about new challenges in prime brokerage and liquidity, as well as how custody services will evolve, regulatory issues, and the requirement for exchanges to show their reserves.

Panelists acknowledged industry concerns about the potential impact of regulation, but stressed that there should be no conflict between crypto firms and regulators.

Palmer said that Cboe Digital’s conservative offerings have now become a strength, as investors look for trusted, safe vehicles to store assets. Cboe Digital provides exchange and clearinghouse service for the crypto spot and derivatives market.

Hirsch, the Kraken exchange’s Hirsch, highlighted the importance of protecting client assets by creating environments in which customers can “trust the venues” they use to engage in digital asset transaction. The group emphasized that assets should be separated, but noted that the notable crypto failures in 2022 were more related to fraud than structure.

Hirsch stated that the challenges faced by the crypto industry 2022 can be an opportunity to move forward, specifically through proof-of reserves accounting. He stated that cryptographic methods allowing assets to be verified can be more reliable in comparison with audits used in traditional finance.

Zuehlke stated that, despite the crypto-industry’s woes in 2022, the recent near meltdown of the banking sector and the lingering concern about its vulnerabilities led to a migration towards bitcoin (BTC), and other digital assets.

“The cat is out of the bag.” Zuehlke stated that bank deposits were risky, in a manner people did not understand. He said that bitcoin is more resilient than ever, with price fluctuations becoming less frequent and important, despite recent reductions in liquidity.

James Rubin is the editor.