The European MiCA (Markets in Crypto Assets) legislation is the most complex attempt to regulate the cryptocurrency industry to date. This ambitious regulation was recently approved by European lawmakers. MiCA brings rules for cryptocurrency service providers and aims to ensure transparency, stability and investor protection.
One of the main elements of this legislation is the obligation for firms offering cryptocurrency services in the EU to obtain registration in one of the member states, allowing them to operate throughout the EU. The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) will be tasked with overseeing compliance with the rules, including putting in place adequate risk management and governance processes to prevent an FTX-like collapse.
MiCA also regulates stablecoins. Issuers of stablecoins (such as Tether’s USDT and Circle’s USDC) will have to maintain sufficient reserves to meet redemption requests in the event of runs. They will also face a transaction volume limit of €200 million ($220 million) per day.
A single regulatory framework could make the EU more attractive to businesses working with blockchain technology and digital assets and put pressure on other jurisdictions to do the same. The MiCA vote is already bearing fruit. The slice of the cryptocurrency equity investment pie that Europe gets, compared for example to the US, is already significantly bigger than it has been a year ago.
However, MiCA does not cover all aspects of the cryptocurrency sector, which has been the cause of the sector’s recent problems. Regulations on crypto lending, decentralized finance and non-fungible tokens (NFTs) are outside the scope of MiCA and are generally already envisaged to be dealt with in MiCA 2 legislation.
Critics argue that MiCA will limit user anonymity by requiring exchanges to provide information about the senders and receivers of transactions. The regulation also requires stricter compliance with the rules for non-custodial wallets and applies to transactions over €1,000.
MiCA is expected to come into force after formal approval by the 27 EU member states in July this year. However, implementation will take a further 12 months. At that time, the regulation of stablecoins will also come into force. All aspects of the digital asset market will be governed under MiCA from December 2024. In the meantime, businesses operating in the cryptocurrency sector will have time to register and familiarize themselves with MiCA’s requirements.
In summary, cryptocurrency companies see MiCA as a step in the right direction, as they can observe on the other side of the Atlantic the consequences of the absence of clear rules. The US approach of punitive measures against big players is already leading to a gradual diversification of their activities into Europe and Asia. MiCA is one of the key factors strengthening this trend.