What is the potential impact of MiCA on the EU blockchain and cryptocurrency market, and what other regulations can be expected for this rapidly evolving sector?
On April 20, The European Parliament voted in favor of the regulation of the Crypto Asset Markets (MiCA), the main legislative proposal of the European Union to supervise the crypto industry in its member countries.
The MiCA regulation is a significant advance for the cryptocurrency industry in the European Union. Before MiCA, cryptocurrency companies had to comply with 27 different regulatory frameworks in EU member states, with Germany or France being, for example, expensive and onerous.
With MiCA, however, EU-wide regulations will apply, allowing companies to operate across the entire EU crypto market with a MiCA license granted in a single country. This will increase the competitiveness of new EU companies and may allow them to gain market share against unregulated competitors.
MiCA will increase the competitiveness of the EU
Additionally, MiCA could foster further adoption and institutional activity in the EU blockchain and cryptocurrency market. Patrick Hansen, director of EU strategy and policy at stablecoin issuer Circle, told Cointelegraph that MiCA will enable European crypto companies to scale and grow faster, allowing licensed companies to offer their services across the world’s largest single market. world, with approximately 450 million people:
“Legal clarity will also encourage innovation among financial institutions that were previously hesitant to launch products and services due to regulatory uncertainty. Furthermore, as MiCA is the first comprehensive regulatory framework for crypto assets from a major jurisdiction in the world, it is likely to attract a considerable amount of foreign capital and talent to the region.”
For Moritz Schildt, board member of the Hanseatic Blockchain Institute and the German Blockchain Association, The biggest advantage of MiCA is that it “will come into force as early as this year”, giving the EU the opportunity to provide a unified regulatory framework for crypto assets and related providers.
Creating a regulatory framework for a technology that sees new developments and improvements virtually every month and evolves as dynamically as the tokenization of investment opportunities is “very challenging.”
“It should come as no surprise, therefore, that some regulations are still suboptimal and application-specific questions remain unanswered”Schildt said, adding that with MiCA, Europe has the opportunity to position itself “as a place for innovation and quality.”
Unregulated companies, outside the EU cryptocurrency market
Peter Grosskopf, co-founder of the decentralized finance (DeFi) project Unstoppable Finance, is also convinced that MiCA will benefit the EU blockchain and cryptocurrency market. Firstly, companies from outside Europe will have to register with a company in the EU, so there is a “direct impact on job creation and tax payment”.
In second place, many jurisdictions take too strict an approach to regulating the crypto sector. For example, “US regulates by enforcement.” Compared to other regions, the EU will become “a safe space for the industry as a whole, and innovators from all over the world will start building their businesses here,” Grosskopf said.
Stefan Berger also pointed out that the United States is cracking down on the cryptocurrency sector. According to the German politician and European Union Parliament rapporteur for MiCA, the European crypto-asset industry has a regulatory clarity that the United States does not, and it would be wise for US legislators to take a cue from MiCA:
“For me, the biggest advantage is that we build trust, which is a crucial boost, especially for young technologies like blockchain. I expect the regulation to become a global standard setter over time. A global MiCA would be desirable at some point.”
Regulation of NFTs is inevitable
Through the MiCA law, European policy makers try to create a reliable framework that builds trust through legal certainty. This includes a uniform asset classification and a requirement for coin issuers to submit a white paper disclosing all relevant information about the coins, such as their energy consumption and environmental impact.
In addition, the MiCA law will ensure that each new token is reviewed for approval to ensure that the business model does not threaten the stability of cryptocurrencies, thus creating more transparency for investors.
But the cryptocurrency and blockchain sector is constantly evolving. “Tokenization is not a hype and it will become an integral part of our lives and the financial world,” Berger said. More and more business models based on non-fungible tokens (NFTs) are emerging, for example, which have been largely exempt from MiCA. (The new regulations will only apply to crypto asset service providers that offer services for NFTs.)
However, according to Berger, NFTs are next on the agenda, and European legislators will consider what kind of regulation would benefit the industry and consumers.
Schildt also expects there to be new NFT regulations relatively soon. “We should reconsider the traditional classification of investment products”. According to the expert, in the future, investments “that were previously considered ‘art collections’, we will also classify as equity investments.”
DeFi is a hot topic in European politics
Some aspects of MiCA have yet to be defined through upcoming technical standards and guidelines.
For example, what are the specific liquidity requirements for e-money token reserves? EU regulators will develop these rules over the next 12 to 18 months, and “the practical success of MiCA will largely depend on this implementation work, also called Tier 2 legislation,” Circle’s Hansen said.
Hansen further noted that, Beyond the MiCA law, the EU institutions are finalizing a new anti-money laundering (AML) regulation that will be “critical for crypto companies.”
Another critical review is that of PSD2, the main EU payments directive, which will also significantly affect crypto businesses.
And finally, In about 18 months, the European Commission will publish a detailed report on DeFi and could take further legislative steps to regulate the space.. “Brussels prides itself on being a world leader in regulation, and MiCA is just the first of many steps to come,” Hansen said.
MiCA will NOT apply to “crypto-asset services provided in a fully decentralized manner without any intermediary”
The @EU_Commission will produce a report in 18 months assessing the “necessity and feasibility of regulating #DeFi” pic.twitter.com/utM4kOw4SM
— Blockchain for Europe (@BlockchainforEU) April 15, 2023
MiCA will NOT apply to “crypto-asset services provided in a fully decentralized manner without any intermediaries”
The @EU_Commission will produce a report in 18 months assessing the “need and feasibility of regulating the DeFi sector
Unstoppable Finance’s Grosskopf also expects DeFi regulation to become a hot topic after the next round of elections in Europe, as MiCA will not apply to “crypto-asset services provided in a fully decentralized manner without any intermediary.” “.
“I think it is important to be proactive and start thinking about how to regulate DeFi as soon as possible to influence the process”he said, stating that the new AML regulation is currently being discussed and will most likely come to fruition before MiCA.
Although it is not yet clear exactly how European legislators will regulate NFTs and DeFi or if there will be new requirements in relation to smart contracts, the success of the first step towards regulation – MiCA – could provide a significant boost to both EU crypto companies and to the EU economy as a whole. However, whether this success will materialize will depend on the practical application rules that are developed in the future.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.