If there are two things tech companies really hate, it’s regulatory uncertainty and inconsistency. Good news for the embattled crypto sector, then, because the European Union’s comprehensive new crypto-asset bill—a world first—just cleared its final legislative hurdle.
The Markets in Crypto-Assets (MiCA) proposal first emerged from the European Commission nearly three years ago. The Commission, the European Parliament, and the bloc’s member states (represented by the Council of the EU) reached a political agreement on it last June, then the Parliament formally adopted the final version last month. The Council followed suit today, making MiCA a done deal. It will probably enter into force around the middle of next year.
The crypto sector has given MiCA a rapturous welcome because it provides a clear set of rules that will apply consistently across the EU—whose tech laws tend to be globally influential.
“Regulatory clarity attracts capital and entrepreneurs from around the world,” tweeted Circle EU strategy chief Patrick Hansen last week, while brandishing statistics showing continental Europe attracted 47.6% of crypto VC investment in the first quarter of this year, up from 5.9% in Q1 2022. He called this “the MiCA effect."
MiCA is largely concerned with regulating the issuance and trading of stablecoins, in the hopes of staving off debacles like the TerraUSD collapse. Those issuing stablecoins will need to have real reserves to back them up, and holders will be able to demand redemption at any time. Only authorized credit or e-money institutions will be allowed to issue electronic money tokens, which are tokens pegged to a single fiat currency.
As for cryptocurrencies outside the stablecoin realm, the law will force anyone planning a major crypto-asset offering in the EU to first issue a white paper for investors, describing everything from the associated rights and risks to the environmental impact of the underlying consensus mechanism (typically a blockchain). Their marketing material will need to exactly align with this document. Providers of custodial wallets will need to be licensed, as will exchange providers.
MiCA doesn’t explicitly cover NFTs—though legal experts say it could still impact that sector in some circumstances—nor does it cover central bank digital currencies, either at the national or European Central Bank level. The new law also leaves out fully decentralized finance (DeFi) platforms for peer-to-peer financial transactions, though it does cover partially decentralized “DeFi” platforms where there’s some exchange provider taking a profit.
On the anti-money laundering front, MiCA will oblige service providers to get the names of both sides of any crypto-asset transaction.
All of which puts the EU way out in front of the U.S. or U.K., where regulators are still trying to find their footing—or, in the case of the U.S., to just figure out which regulator is supposed to get the crypto brief. “It's really commendable that Europe was able to get that done so quickly,” Securities and Exchange Commissioner Hester Peirce said at a conference last week. “We are shooting ourselves in the foot by not having a regulatory regime in the U.S.”
The challenge now is to find some kind of global harmony on crypto rules, but however that plays out, MiCA’s influence will loom large.
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David Meyer
Data Sheet’s daily news section was written and curated by Andrea Guzman.
