Understanding accredited investors in cryptocurrency markets: A comprehensive analysis

Abstract

Accreditation has historically played a central role in securities regulation, seeking to balance investor protection, market access, and capital formation. Traditionally, regulatory frameworks have relied on wealth or income thresholds as proxies for investor sophistication, premised on the assumption that individuals with greater financial resources are better equipped to manage risk and obtain professional advice. However, in rapidly evolving crypto-asset markets, these wealth-based criteria have become increasingly misaligned with market realities. Such thresholds frequently exclude technically proficient but less affluent participants, thereby perpetuating inequality and conflicting with the inclusive ethos of digital finance. Moreover, these criteria have failed to prevent significant losses among wealthy accredited investors, as evidenced by the collapses of Terra-Luna, Three Arrows Capital, and FTX. Competence-based frameworks are still underdeveloped, unevenly applied, and can become overly formal, while traditional disclosure rules do not fully address the technical and behavioral challenges of decentralized finance. This article takes a critical look at accreditation in crypto-asset markets, drawing on legal, empirical, and normative analysis. By comparing the United States, European Union, Singapore, and Russia, and examining cases like the ICO boom, Singapore’s regulatory sandboxes, and the Terra-Luna and FTX collapses, the article shows that wealth-based accreditation falls short in fairness and effectiveness. It proposes a hybrid approach that combines competence assessments, crypto-specific disclosure, prudential safeguards, regulatory sandboxes, and international cooperation. This article contends that reforming accreditation constitutes a fundamental transformation in the approach to investor protection, advancing principles of fairness, legitimacy, and systemic robustness. By introducing a hybrid framework grounded in fairness and empirical evidence, the article contributes to policy discourse and informs scholarly understanding of the evolution of financial regulation in the context of digital innovation.