What is Markets in Crypto-Assets Regulation (MiCA)?
Markets in Crypto-Assets Regulation, or MiCA crypto regulation, is a guideline for people who sell, buy, and hold cryptocurrencies in all EU states.
The cryptocurrency industry has been achieving key milestones since last year. The value of the major cryptocurrencies has been on the rise for some time. Both businesses and day-to-day users are accepting them, and with the introduction of ETFs, there are new ways to invest in crypto.
Another important milestone is the introduction of comprehensive EU crypto regulations. Let’s examine in detail this MiCA crypto regulation.
Table of Contents
- What is MiCA?
- Introduction of MiCA
- Compliance & Penalties
- More About the Laws Under the MiCA
- Concerns
- Global Impact
Why did the European Union Introduce the MiCA Regulation?
The European Union introduced MiCA as a 150-page document in June 2023 to regulate the crypto market and ensure financial stability through complex regulations and rules.
It is the EU’s response to the growing changes in the crypto world. These new regulations are the product of a long and complicated process that included a two-year-long debate regarding the different EU states and their place in the crypto trade.
The law covers the crypto asset sector and the use of popular crypto exchanges. An important thing about MiCA is that it doesn’t try to apply the rules for other financial assets to crypto. Instead, it treats crypto trading as a separate thing. It is what the US regulations have been missing. The existing laws couldn’t cover the novelty of the technology, and it left a hole in terms of regulatory effort.
Moreover, in the past, there have been concerns about how the EU institutions have the most control over regulations. Therefore, it’s better when national parliaments and other political bodies control national regulatory agencies. This setup allows individual countries to make most decisions while following a shared framework.
Rules Regarding Compliance & Penalties
➔ Compliance
Compliance with the regulations is very complex. It delves deep into how different state and EU institutions work together to provide a regulatory framework. In simple terms, any business that wants to offer services in the crypto industry, such as trading, consulting, asset management, etc., needs authorization from any of the 27 EU financial regulators.
Companies that offer crypto assets also need to create a white paper that they will issue to the public. It must mention the risks involved with trading crypto, among other necessary information that the public must be aware of.
➔ Penalties
Most of the industry likes these new rules because they make the sector more trustworthy and reassure new investors. However, the regulations also include penalties for those crypto exchanges that don’t follow the rules. Moreover, the penalties are high to ensure everyone follows the articles.
The fine starts at Euro 5,000,000 and goes up to Euro 15,000,000. In addition to monetary penalties, the regulators will release a public statement mentioning the person who broke the rules and what they did. They might even have to pay a fine double the profit they made from breaking the rules.
More About the Laws Under the Markets in Crypto-Assets Regulation
➔ How to Treat Stablecoins?
Stablecoins, which benefit from both crypto and fiat money, are more related to fiat money, making them a unique asset. It is why it was not regulated at all. Thus, for the first time, the new European regulations are making an effort to do so.
MiCA refers to them as “e-money tokens” (EMTs) and “asset-referenced tokens” (ARTs). The regulation constrains the use of stablecoins due to many factors. One rule is that the use of stablecoins that aren’t tied to one of the European fiat currencies is not allowed at all. Furthermore, those stablecoins that rely on European currencies can’t have more than one million transactions per day. These regulations apply to Terra-style algorithmic stablecoins, too.
The goal of this regulation isn’t that much to govern the use of stablecoins but to preserve the use of the Euro and other European national currencies since most stablecoins are based on the value of the US dollar.
➔ Plans to Curb Proof of Work Crypto
There are a lot of concerns involved in using crypto, and not all of them are financial. For years, the EU, and especially its green and left parties, have been trying to limit the use of cryptocurrencies. It is because there is an issue with the amount of energy that goes into proof of work for most cryptocurrencies.
The MiCA does not regulate the use of proof of work exactly, but it promotes the use of proof of stake rather than proof of work, as that’s more lucrative for both them and the end user.
Concerns about the Markets in Crypto-Assets Regulation
➔ Non-Inclusion of NFTs
One of the main criticisms of the US crypto regulation is that it can’t follow the ever-changing technology behind cryptocurrencies. However, we can say the same for MiCA, as it didn’t cover the use of NFTs. NFTs became a mainstream phenomenon during the years it took for EU institutions to write the regulations.
The main issue is the exact definition of an NFT, as this affects which rules should apply to NFTs and how the regulators will tax the profits. Courts will likely have to figure this out as we go along.
➔ Effect on Companies in the Off-shore Zones
At this point, it isn’t clear how MiCA will affect the EU firms that operate in the off-shore zones. The law is complex and comprehensive, but there are still loopholes in it, as there are in any legal framework.
The loophole comes from the fact that the EU cannot stop companies from looking for expert help outside the EU. Many companies find experts from all over the world to avoid EU regulations, and chances are that this will start happening with crypto.
Global Impact of the Markets in Crypto-Assets Regulation
EU regulations have made the use of crypto safer by increasing restrictions. This will impact the crypto market globally.
- Firstly, most US-based crypto companies want to work with the EU markets and be a part of it.
- The EU regulations will also affect other Western countries in their own regulation efforts.
- Some US lawmakers have already said that they plan to base future US regulations on those made in the EU.
Final Thoughts
MiCA crypto regulation is a comprehensive EU law that deals with the use of crypto and crypto exchanges. The law is a gold standard for complex and detailed regulation in this complex and new financial market. It doesn’t mean that the regulation is perfect since none is. There are already some loopholes that some companies working in crypto will take advantage of while working abroad.
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