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The future of Crypto Regulation in the EU
If you are reading this, you are probably well aware of what MiCA is, and what are the implications on the crypto industry as a whole.
As thought leaders, we want to share our perspectives and insights about this burning topic.
Without a comprehensive regulatory framework for crypto-assets in the Union, users may lack confidence in such assets, resulting in limited market development and missed opportunities for innovative digital services, alternative payment methods, and new funding sources for Union companies.
The European Commission, the European Parliament, and the Council of the European Union agreed on the new EU Market in Crypto-assets Regulation (MiCA) on June 30, 2022.
It is the world’s first comprehensive regulatory regime for crypto-assets tailored specifically to the crypto industry. Europe currently holds the largest crypto market share, accounting for 25% of global crypto activity, making it essential for market participants to pay attention to MiCA.
Other national regulators may also use MiCA as a blueprint or framework for their regulatory initiatives. Therefore, market participants outside of the EU can gain insights into their local regulatory approach by considering the EU approach.
Binance CEO Changpeng “CZ” Zhao said that Europe’s Market in Crypto Assets (MiCA) regulatory framework, though demanding, could become a global standard for the entire crypto sphere.
Here are a few “network effects” that we oversee will take place when MiCA is enforced:
Increased regulatory compliance costs:
Crypto businesses operating in the EU will have to comply with MiCA’s requirements, which may include obtaining licenses, registering with authorities, and adhering to reporting obligations. These additional compliance costs could make it more difficult for smaller businesses to operate in the EU, leading to consolidation in the industry.
Improved consumer protection:
MiCA aims to enhance consumer protection by requiring businesses to implement measures to prevent fraud and protect customer funds. This could help to increase consumer confidence in the crypto industry, potentially leading to increased adoption.
Standardization of regulations:
MiCA will create a unified regulatory framework for crypto-assets across the EU, which could lead to increased standardization of regulations. This could make it easier for businesses to operate across multiple EU member states.
Restriction of certain activities:
MiCA includes provisions for the regulation of stablecoins and other types of crypto-assets. The regulation of these assets could potentially restrict certain activities, such as the use of stablecoins for remittances or payments, which may limit innovation in the industry.
Transparency and preventing market manipulation
Its comprehensive regulatory framework is intended to protect investors, enhance market transparency, and prevent market manipulation in the crypto industry.
By establishing clear rules and imposing strict penalties on those who break them, MiCA aims to create a level playing field for all market participants and foster a safe and sustainable crypto industry in the EU.
The regulation includes provisions that prohibit various forms of market manipulation, such as insider trading, market abuse, and price manipulation. It also requires market participants to disclose their activities and provides for supervisory measures and administrative sanctions to be imposed on those who violate the rules.
Crypto influencers, for example, must be cautious when commenting on crypto assets on social media without disclosure and profiting from it, because this will be viewed as market manipulation once MiCA takes effect.
The recent case of Kim Kardashian being fined $1.26 million by the U.S. SEC for promoting EthereumMAX (EMAX) without disclosing the promotion serves as a warning to influencers.
Interaction with other legislation
MiCA will not apply to crypto-assets that are already regulated under existing EU financial services regulations, even if they use similar technology for issuance or transfer.
This includes crypto-assets classified as “financial instruments” under current EU legislation, which will continue to be governed by the existing regulations.
The European Securities and Markets Authority will publish guidelines on how MiCA and current EU financial services regulations interact to establish a clear distinction between the two before the regulation comes into effect.
Conclusions
Overall, the impact of MiCA on the crypto industry remains to be seen. However, it is clear that the introduction of new regulations will have a significant impact on the way crypto-assets are traded and used in the EU, and probably in many jurisdictions outside of the EU as well.
Read our detailed comparison between different EU jurisdictions in this article.
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