Crypto Rules Will Make Europe a Global Leader as Prices Crash

LONDON — Europe has taken the lead in regulating the freewheeling cryptocurrency industry at a time when prices have plunged, wiping out fortunes, fueling skepticism and prompting calls for greater scrutiny.

European Union negotiators hammered out the final details of a tentative agreement late Thursday on a broad set of crypto regulations for the bloc’s 27 countries, known as Markets in Crypto Assets, or MiCA.

“In the Wild West of the crypto world, MiCA will be a global standard setter,” lead European lawmaker negotiating the rules, Stefan Berger, said in a press release. The EU crypto rules “will ensure a harmonized market, provide legal certainty for issuers of crypto-assets, ensure a level playing field for service providers and guarantee high standards of consumer protection”.

Like the EU’s pioneering data privacy policy, which has become the de facto global standard, and its landmark recent law targeting harmful content on digital platforms, crypto regulation should have a great influence all over the world.

The EU rules are “really the first comprehensive piece of crypto regulation in the world,” said Patrick Hansen, venture capital adviser at Presight Capital, a venture capital fund.

“I think there will be a lot of jurisdictions looking closely at how the EU has dealt with this since the EU was first here,” Hansen said.

He expected authorities in other places, especially smaller countries that don’t have the resources to craft their own rules from scratch, to adopt rules similar to those in the EU, even if “they could change some details”.

Under regulations in the crypto asset markets, exchanges, brokers, and other crypto companies face strict rules aimed at protecting consumers.

Companies issuing or trading crypto assets such as stablecoins – which are usually pegged to the dollar or a commodity like gold which makes them less volatile than normal cryptocurrencies – face strict transparency requirements forcing them to to provide detailed information on the risks, costs and charges that consumers face.

The rules will help novice crypto investors avoid falling victim to frauds and scams that regulators say are prevalent in the industry.

“It’s a huge advantage in this space, especially for someone who has absolutely no idea where to go, who to look for, or where to invest my money,” said Jackson Mueller, director of policy and government affairs at Securrency. , a blockchain. infrastructure company.

Bitcoin-related service providers would fall foul of the regulations, but not bitcoin itself, the world’s most popular cryptocurrency which has lost more than 70% of its value since peaking in November.

To address concerns about the carbon footprint left by bitcoin mining, which consumes huge amounts of electricity for computing “proof of work” to record and secure transactions, companies cryptography companies will be required to disclose their energy consumption and prominently display information online about their environmental and climate impact.

Traders exempted NFTs, or non-fungible tokens, which have exploded over the past year. The EU said that unlike cryptocurrencies, digital assets, which can represent works of art, sports memorabilia or anything else that can be digitized, are unique and sold at a fixed price. But that left room to later reclassify them as a crypto asset under MiCA or as a financial instrument.

The European rules aim to maintain financial stability – a growing concern for regulators amid a string of recent crypto mishaps. For example, the TerraUSD stablecoin imploded last month, wiping out an estimated $40 billion in investor funds with little to no accountability.

The collapses have prompted calls for regulation, with other major jurisdictions still working out their strategies. In the United States, President Joe Biden issued an executive order in March on government oversight of cryptocurrency, including studying the impact on financial stability and national security.

Last month, California became the first state to officially begin looking at how to broadly accommodate cryptocurrency, with plans to work with the federal government on developing regulations.

The The United Kingdom has also unveiled its intention to regulate certain cryptocurrencies.

A few European countries, like Germany, already have basic crypto regulations. One of the EU’s goals is to harmonize rules across the bloc, so that a crypto company licensed in one country can offer services in other member states.

EU rules, which still need final approval and are expected to come into force by 2024, include measures to prevent market manipulation, money laundering, terrorist financing and other criminal activities .

The EU also tentatively agreed on new rules on Wednesday subjecting cryptocurrency transfers to the same money laundering rules as traditional bank transfers.

When a crypto asset changes hands, source and beneficiary information should be stored on both sides of the transfer, according to the new rules. Crypto companies should turn over this information to authorities investigating criminal activities such as money laundering or terrorist financing.

EU institutions work out the technical details before the cryptographic tracking rules receive final approval.

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Follow Kelvin Chan on Twitter at https://www.twitter.com/chanman.

Mary I. Bruner