The cryptocurrency landscape within the European Union (EU) is poised for a significant transformation as the first set of new regulations under the Markets in Crypto-Assets Regulation (MiCA) is about to take effect.
The implementation of MiCA is expected to take place gradually. Regulations concerning stablecoins are anticipated to come into effect on June 30. In December, regulations impacting crypto asset service providers will be introduced.
This legislation is the first on the continent to institute uniform market rules for crypto assets within the EU and has been anticipated to come from regulators since it was first on the table in September 2020.
In April 2023, the EU Parliament approved the MiCA laws with the goal of bringing forth a new era of regulation for the crypto space, which also marked its significance as an industry in Europe’s financial sector.
On June 9, 2023, the Markets in Crypto-Assets Regulation (MiCA) was officially published in the Official Journal of the European Union. Now, a year later, the first set of regulations is coming into effect. But what does this mean for cryptocurrency companies, EU member states and users?
Cointelegraph heard from various industry experts across Europe to better understand the implications of the first MiCA rules.
Overall short-term effects
While government regulation, to a certain extent, will always entail a little extra red tape around a given industry, it also brings with it a level of legitimacy. This is particularly true for the crypto industry, which has been widely scrutinized for its volatility and speculative nature.
Reinis Znotins, the executive director of the Latvian Blockchain Association, spoke with Cointelegraph and said that one of the first effects we will see after the introduction of MiCA will be “psychological.”
“There are no longer speculations about the legitimacy of crypto business in the EU. Before, one always heard doubts from various stakeholders - is the crypto business legitimate, is there a future for crypto in highly regulated environments, such as the EU.”
He said these doubts have begun to disappear since the EU Parliament at the highest level has said that crypto-related businesses are legitimate and there is a certain legal framework in which companies have to operate.
John Egilsson, the former chairman of the supervisory board of the Icelandic Central Bank and co-founder at Monerium, said MiCA gives regulatory clarity but also a “market disruption.”
“This is since EMTs now need to be compliant, and it also applies to CASPs, such as exchanges and wallets, that technically will need to delist MiCAR non-compliant stablecoins as soon as June 30.”
Bye-bye stablecoins
This means that crypto exchanges may delist certain non-compliant stablecoins or restrict services for EU and EEA-based users. Already, many crypto exchanges operating within the EU have begun to do this.
Cryptocurrency exchanges Uphold, Bitstamp, Binance, Kraken and OKX have also started to delist stablecoins like Tether (USDT).
Egilsson said it is possible to see these non-compliant stablecoin issuers potentially exit the EU market entirely, with a potential shift toward euro-backed stablecoins as demand picks up in European markets.
Laura Chaput, the head of regulatory compliance at Keyrock echoed this sentiment, saying:
“Despite these restrictions, there’s a possibility that the stablecoin market could actually grow as retail investors gain confidence from the increased regulatory protections.”
Additionally, on June 13, the European Banking Authority (EBA) published several last-minute reports on Regulatory Technical Standards (RTS) related to e-money tokens (EMTs) under MiCA. These reports outline standards that will take effect on June 30 and should be included accordingly.
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The former chairman said in the short term it is likely regulators will need to spend time clarifying some of the newly issued regulatory issues since the final versions of some of the more critical components of this regulation, including safeguarding rules, just surfaced.
“From market players’ point of view it will take some time to respond to those new requirements so I would assume that the EU Commission will provide a transition period that will likely last some months and even until year-end.”
EU crypto businesses
The primary concern for crypto firms within the EU will be staying informed about regulations and any last-minute changes, like those previously mentioned.
Egilsson emphasized that the focus should be on securing proper authorization. This involves meeting strict organizational, governance, and capital requirements, such as maintaining adequate and high-quality reserves to support their value.
He pointed to stablecoin issuers saying that:
“Stablecoin issuers that have so far been authorized and licensed as e-money institutions (EMIs) will face some new requirements but not a fundamental change for their operations. Stablecoin issuers that are already authorized as e-money institutions need to review some of their operations and safeguarding procedures but nothing major.”
“In the medium term, there's also likely to be increased competition as this creates legal clarity for larger institutional players to enter the market. “
Chaput said some businesses may attempt “regulatory arbitrage” by relocating or trying to leverage reverse solicitation principles.
On the other hand, she also said this new landscape could “open doors” for established financial institutions to enter the stablecoin market.
Users this is for you
With June 30 approaching, EU crypto users may also be starting to question their own role in the scenario. Chaput said they should prepare for a changing ecosystem, with less access to certain assets but “greater transparency about how these tokens operate.”
“Users will benefit from enhanced consumer protection measures, such as guaranteed redemption rights for EMT holders… the increased regulatory oversight aims to provide a safer environment for investors.”
She also noted it is possible to see some users tempted to trade on non-EU exchanges for access to a broader range of tokens, but potentially exposing themselves to less regulated environments with fewer protections.
Egilsson said we should hope that in the long term, “users will benefit from enhanced protections and more transparent information about the crypto assets they're dealing with.”
“While there may be some initial inconvenience and higher barriers for new entrants, the end result will hopefully be a safer and more reliable environment for crypto users in the EU and the EEA.”
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