Regulator ambiguity and inconsistent enforcement are the two things that tech companies really dislike. The European Union’s complete new crypto-asset bill, a world first, has finally passed its final parliamentary obstacle, which is good news for the volatile cryptocurrency industry.
The European Commission first presented the Markets in Crypto-Assets (MiCA) concept over three years ago. Last June, a political agreement was made on it between the Commission, the European Parliament, and the member states of the union (represented by the Council of the EU). Last month, the Parliament formally adopted the finished product. The Council did the same today, finalizing MiCA. It’s likely to go into effect in the middle of the next year.
MiCA has received a thunderous welcome from the cryptocurrency industry since it offers a clear set of guidelines that will be applied uniformly throughout the EU, whose IT legislation frequently have an international impact.
Last week, Circle EU strategy chief Patrick Hansen tweeted, “Regulatory clarity attracts capital and entrepreneurs from around the world,” while displaying statistics showing that continental Europe got 47.6% of cryptocurrency VC investment in the first quarter of this year, up from 5.9% in Q1 2022. He referred to this as “the MiCA effect.”
MiCA is primarily focused on controlling the issuance and trade of stablecoins in an effort to prevent catastrophes like the collapse of the TerraUSD. Holders will have the right to demand redemption at any time, and those issuing stablecoins will need to have genuine reserves to support them. Electronic money tokens, which are pegged to a single fiat currency, may only be issued by accredited credit or e-money institutions.
Regarding cryptocurrencies other than stablecoins, the law mandates that anyone preparing a significant crypto-asset offering in the EU first publish a white paper for investors that covers all relevant topics, including the associated rights and dangers, as well as any potential environmental impacts of the underlying consensus process, which is often a blockchain. Their promotional materials must be completely consistent with this document. Both exchange providers and custodial wallet providers will need licenses.
NFTs and central bank digital currencies, both at the national and European Central Bank levels, are not expressly covered by MiCA, yet legal experts believe it may nonetheless have an impact on such sectors in certain situations. The new rule also excludes completely decentralized finance (DeFi) networks for peer-to-peer financial exchanges, although it does enable partially decentralized “DeFi” platforms where an exchange operator makes money.
MiCA will require service providers to obtain the names of both parties in each crypto-asset transaction as part of its anti-money laundering requirements.
As a result, the EU is well ahead of the U.S. and U.K., whose regulators are currently establishing themselves or, in the case of the U.S., determining which regulator should receive the crypto brief. Hester Peirce, the Securities and Exchange Commissioner, said at a conference last week that it was “really commendable” that Europe was able to complete that task so swiftly. “We are shooting ourselves in the foot by not having a regulatory regime in the United States.”
Finding some sort of worldwide consensus on crypto standards is now a struggle, but no matter how it turns out, MiCA’s effect will be felt strongly.
