After nearly two years of heated debates on the European Union’s first comprehensive legal framework for cryptocurrencies (MiCA), the European Commission, relevant lawmakers and member states have managed to agree on a model. What does the decision mean for crypto companies and users in the EU?
The new legal framework, which has been discussed since its introduction in 2020, covers the areas of transparency, disclosure, authorization and monitoring of transactions by service providers. It aims primarily to create a unified approach across all 27 Member States. However, MiCA is not completely without criticism.
The legal framework for cryptocurrencies and digital assets
Known as Markets in Crypto Assets (MiCA), the law will impose new regulations on many players in the crypto market. In addition to stock exchanges, it primarily affects the so-called issuers stablecoinslinked to an existing asset such as the US dollar or the euro. Under the new rules, stablecoins such as Tether (USDT) and the USDC of the circuit Maintain adequate reserves, in order to be able to fulfill refund requests in the event of group withdrawals. Stablecoins that get too big (systemically significant) should also expect their transactions to be limited to €200m per day; Somewhat absurd given the current billions by volume.
Overall, MiCA is the first attempt to create a comprehensive regulation of digital assets in the European Union. While some of the stricter guidelines have unsettled cryptocurrencies, many industry insiders see the move as a positive. They believe that Europe can lead the way in regulating cryptocurrencies. The legislative package is expected to enter into force as early as 2024. Its introduction at the EU level would put pressure on the US and UK to catch up as soon as possible.
Financial stability through laws
MiCA also gives the European Securities and Markets Authority (ESMA) the power to ban or restrict crypto platforms if they do not believe they adequately protect investors or even endanger financial stability.
“Today we are bringing order to the Wild West of crypto assets and setting clear rules for a harmonized market that provides legal certainty to issuers of crypto assets, guarantees equal rights to service providers and also ensures high standards for consumers and investors.” – Stefan Berger, chief negotiator in the European Parliament
MiCA also addresses environmental issues related to cryptocurrency, forcing companies to disclose their energy consumption and the environmental impact of digital assets. A win over an earlier proposal that involved mining, the energy-intensive process of minting new units of bitcoin (BTC) and other coins, complete wanted to be banned.
Corporate legal certainty
MiCA was widely expected to be completed later this year. A number of digital asset companies operating in Europe or planning to expand into Europe have already taken steps ahead of this. The intention was to ensure compliance with the regulations as soon as possible.
Coinbase, for example, recently announced that the exchange would be eyeing five potential European jurisdictions: Spain, Italy, France, the Netherlands, and Switzerland. The listed company already has approvals from Ireland, Germany and the UK’s Financial Conduct Authority to operate a multilateral trading facility (MTF). With the new framework, the leading cryptocurrency exchange in the United States sees an opportune moment to enter the European Union market.
Industry representatives are not satisfied with the entire package
MiCA is not intended to affect issuerless tokens such as Bitcoin, but trading platforms need to warn consumers of the risk of loss when trading digital tokens; Similar to what happens with other assets. MiCA complements existing anti-money laundering regulations and aims to improve financial stability and protect investors in Europe. Regardless, regulators have agreed on measures that will reduce the anonymity of some crypto transactions. The The authorities are very concerned Regarding the use of crypto assets to launder illegal profits or evade sanctions, especially then The ongoing Russian invasion of Ukraine.
Transfers between exchanges and so-called “non-hosted wallets” owned by individuals must also be reported. A controversial topic for cryptocurrency enthusiasts who often trade in digital currencies for privacy reasons. Thus, anonymous payments are effectively prohibited. In the end, the €1,000 upper limit for anonymous transactions proposed by the EU Commission was abandoned. Although the citizens to be protected regard the anonymous use of money as a “fundamental personal freedom” and this is mentioned in the surveys.
Paolo Arduino, CTO of Tether, the world’s largest stablecoin issuer, welcomes the regulatory clarity. MiCA can be compared to GPDR for data protection for encryption. Leading data protection rules in the European Union set the standard for similar laws in other parts of the world.