MiCA regulation, Markets in Crypto-Assets regulation, has been approved by the European Commission, bringing with it a new framework of EU-wide crypto rules. While the new system is not expected to come into force until 2024, the EU aims to close the regulatory gap that exists between the crypto industry and existing financial services. This move towards establishing regulatory clarity and guidance for cryptocurrencies is a clear indication of the growing importance of the industry and the need for governments to adapt to new technologies.
What sets MiCA regulation apart from previous attempts at regulation is that it is not just shoehorning crypto into current categorizations but is instead a novel set of rules that acknowledges the importance of crypto and the necessity to adapt to new technologies. The MiCA definition of a crypto asset is a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology.
MiCA breaks down crypto assets into three categories: asset-referenced tokens (ARTs), electronic money tokens (EMTs), and a catch-all group containing other crypto assets. ARTs and EMTs are both stablecoins, but the distinction between the two is that EMTs are pegged one-to-one to a fiat currency, while ARTs can be backed by a combination of assets, including fiat, crypto, and other assets, but not simply by one fiat currency. Among the central points covered by MiCA are requirements that stablecoins are sufficiently backed, capital requirements for issuers, and issuance limits, with an overall emphasis on transparency.
MiCA is heavily focused on stablecoins and customer asset service providers (CASPs), such as centralized exchanges and market makers. However, one issue MiCA doesn’t deal with directly is self-custody, meaning the capacity for crypto users to hold their funds in their wallets. Still, it is covered by the Transfer of Funds Regulation (TFR), which links up with MiCA.
The technicalities and details of MiCA will be open to revision as the regulation plays out in the real environment, and the EU strategy inevitably has imperfect regulations in place that can be modified and improved as required.
Seth Hertlein, the Global Head of Policy at Ledger, described the sense in Europe that Europe has lost out on web2, with all the web2 giants first being American and then increasingly Chinese. Although Europe was spurred into action by Facebook’s announcement in 2019 that it planned to create Libra, a dollar-pegged stablecoin that was never completed, EU crypto policies may now provide regulatory precedent for the world as a whole.
While other nations may delay providing rules for their own MiCA, and the US may lack clarity or wield ill-fitting rules in a hostile manner, EU policies can still influence global regulatory development. Despite these potential benefits, regulatory battles in the EU do not end with MiCA, and further EU regulation proposals are already lining up. Overregulation can stifle innovation and create obstacles, while the US has markedly outperformed the EU in establishing global tech companies. Therefore, there are compelling arguments for other regions not to rush to place restrictions on a still-emerging field of tech development.
In conclusion, the MiCA regulations indicate a positive sign of the EU’s growing interest and recognition of the potential of cryptocurrencies. The regulations provide clarity and guidance for an industry previously perceived as unregulated and unsafe. It will allow the industry to adopt a new set of rules rather than struggle to fit into the existing system of regulations. Although there may be imperfections in the initial MiCA regulations, revising and adapting them will be essential to ensure a stable and transparent system for the development of the crypto industry.
