Europe Could Lead the Race for Crypto Regulation with MiCA

While cryptocurrency regulation has been a hot topic for some time, it wasn’t until the last year that governments around the world started paying more attention to regulating the booming cryptocurrency market. crypto.

El Salvador accepting Bitcoin as legal tender last September has further sparked this interest. The MMF then warned the country that a lack of regulation in the space could negatively impact its financial system. The White House is expected to release its own set of cryptocurrency laws in the coming weeks. Even Russian President Vladimir Putin has urged the country’s central bank to consider regulating the crypto industry instead of instituting blanket trade bans.

However, regulating for the sake of regulating will do little to help the industry grow.

The decentralized and global nature of crypto and blockchain businesses makes it difficult to comply with regulations in every state in which they operate.

This is what the upcoming European Union bill aims to address.

Borderless Trade for Crypto Businesses in the EU

EU Crypto Asset Markets (MiCA) was originally offered in 2020 as part of the European Commission’s Digital Finance package. And although it took most of 2021 for the European Council, the European Central Bank (ECB) and the European Data Protection Supervisor to give the proposal a green light, we could see it ratified in the European Parliament. from this quarter.

In its latest report, analyst firm CoinShares notes that the MiCA negotiations are more likely to be completed by the middle of the year, given the complexity of the European Union legislative process.

If ratified, the MiCA could officially start in the summer of 2024, transforming the European regulatory landscape to benefit the crypto industry.

What makes MiCA so important to the crypto industry is the fact that it would effectively eliminate the need to comply with local regulations. Although they are all under the aegis of the European Parliament, none of the EU member states have the same tax and legal system. This means that a company wishing to operate in the wider European market must currently comply with 27 different legal systems, many of which still do not recognize cryptocurrencies as an asset class.

MiCA offers a universal operating license to crypto companies that adhere to the standards it prescribes. With a license issued under the MiCA, crypto companies could operate in any country in the European Economic Area, even if they do not meet all the standards of each of the country’s legal systems.

A license issued under the MiCA would act almost like a universal passport, providing EU businesses and projects with a borderless business environment.

The pros and cons of MiCA

There are many things that make MiCA unique in the regulatory space. Apart from being a rather innovative way of dealing with regulation in a fragmented union of countries like the EU, it is also one of the first proposals to recognize four different types of digital assets: payment tokens, tokens referenced by assets, utility tokens and e-money tokens.

The proposed legislation will not apply to CBDCs or security tokens, which are already subject to existing EU regulations.

With clear definitions of what each of the token categories encompasses, MiCA would provide businesses operating in the EU with a highly transparent regulatory environment. It will also make it easier for businesses registered in a European Economic Area country to expand their business to the rest of the region.

Many global crypto companies, including crypto exchanges, have welcomed this comprehensive bill and are looking forward to a simpler regulatory environment.

However, MiCA comes with a long series of shortcomings.

The legislation was clearly drafted right after Facebook unveiled plans to launch the controversial Libra token, later renamed Diem. Its definition of an asset-referenced token seems designed specifically for Libra and introduces regulations that many believe will also negatively affect all fiat-backed stablecoins.

Another major issue with MiCA is blindness to the DeFi space. The incredibly slow and complex process of drafting legislation like this in the EU means its regulators are struggling to keep up with the market. With the exponential growth of the DeFi industry, any law the European Parliament might propose now would take years to implement, essentially rendering it obsolete.

Nevertheless, the fact that the European Union is proactively trying to regulate the industry is an overall positive development. Despite the rising cost of compliance, we can expect crypto companies to seriously consider expanding their operations to the EEA. With more and more big markets like Russia and India actively hampering innovation in the blockchain and crypto space, a tightly regulated yet transparent environment like the EU could turn the region into a new blockchain hub.


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Mary I. Bruner