EU Agrees to Negotiate on Historic MiCA Cryptocurrency Regulation

Bitcoin is a volatile asset, and has been known to swing more than 10% up or down in a single day.

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On Thursday, EU officials secured agreement on what will likely be the first major regulatory framework for the cryptocurrency industry.

The European Commission, European lawmakers and member states reached an agreement in Brussels after hours of negotiations. The move came a day after the three major EU institutions finalized measures to stamp out crypto money laundering.

The new rules agreed on Thursday come at a brutal time for digital assets, with bitcoin facing its worst quarter in more than a decade.

Known as Markets in Crypto-Assets, or MiCA, the landmark legislation will make life more difficult for many crypto market participants, including exchanges and issuers of so-called stablecoins, tokens intended to be pegged to existing assets such as the US dollar. .

Stablecoins like tether and Circle’s USDC will need to maintain sufficient reserves to meet redemption requests in the event of large withdrawals. They also risk being limited to 200 million euros in transactions per day if they become too large.

While EU member states will be primarily responsible for enforcing the rules, the European Securities and Markets Authority, or ESMA, is also empowered to step in to ban or restrict crypto platforms if they threaten consumer protection. investors, market integrity or financial stability.

“Today, we are bringing order to the Wild West of crypto assets and establishing clear rules for a harmonized market that will bring legal certainty to issuers of crypto assets, guarantee equal rights for service providers and will ensure high standards for consumers and investors,” said Stefan Berger. , the legislator who conducted the negotiations on behalf of the European Parliament.

MiCA will also address environmental concerns surrounding crypto, with companies being required to disclose their energy consumption as well as the impact of digital assets on the environment.

A previous proposal would have done away with crypto mining, the energy-intensive process of minting new units of bitcoin and other tokens. However, this was rejected by lawmakers in March.

The rules will not affect tokens without issuers, such as bitcoin, but trading platforms will have to warn consumers of the risk of losses associated with trading digital tokens.

Regulators have also agreed to measures that would reduce anonymity when it comes to certain crypto transactions.

Authorities are deeply concerned about the mining of crypto-assets for laundering ill-gotten gains and circumventing sanctions, especially after Russia’s ongoing invasion of Ukraine.

Transfers between exchanges and so-called “non-hosted wallets” owned by individuals will need to be reported if the amount exceeds the €1,000 threshold, a contentious issue for crypto enthusiasts who often trade digital currencies for reasons confidentiality.

Non-fungible tokens (NFTs), tokens that represent ownership of digital properties like art, were excluded from the proposals. The European Commission has been tasked with determining whether NFTs require their own regime within 18 months.

Non-stablecoins

The rules follow the collapse of terraUSD, a so-called “algorithmic” stablecoin that attempted to maintain a value of $1 using a complex algorithm. The debacle resulted in the removal of hundreds of billions of dollars from the entire crypto market.

“The EU is not happy with stablecoins in general,” said Robert Kopitsch, secretary general of crypto lobbying group Blockchain for Europe.

Policymakers have been skeptical of these tokens — which aim to be pegged to existing assets, such as the dollar — ever since Facebook’s failed attempt to launch its own token in 2019. Authorities feared that private digital tokens end up threatening sovereign currencies like the euro.

Paolo Ardoino, chief technology officer of Tether, said the world’s largest stablecoin issuer welcomes the clarity of the regulations.

“MiCA is one of the most progressive initiatives to date and is focused on driving innovation and crypto adoption in the European region,” the spokesperson said.

Dante Disparte, chief strategy officer at Circle, said the EU framework was an “important step”.

The MiCA “will be to crypto what the GDPR was to privacy,” he said, referring to groundbreaking EU data protection rules that set the standard for similar laws elsewhere in the world. the world, especially in California and Brazil.

Reduce fragmentation

Overall, MiCA is the first attempt to create comprehensive regulation for digital assets in the EU. While some of its tougher policies have rattled a few crypto companies, several industry insiders see the move as a positive step and think Europe could lead the way in crypto regulation.

The rules are set to come into effect as early as 2024, a landmark move that would put the bloc ahead of the United States and Britain in rolling out laws tailored to the crypto market.

“Market harmonization is key to really generating bigger and bigger crypto companies in Europe,” said Patrick Hansen, adviser to venture capital fund Presight Capital.

“Europe currently lacks huge crypto companies, and fragmentation is one of the reasons.”

Coinbase is seeking licenses in several European countries including France, said Katherine Minarik, the company’s vice president of legal. She told CNBC that the exchange will be able to “passport” its services to all 27 EU countries under MiCA.

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