EU’s new crypto law: How MiCA can make Europe a digital asset hub

On May 31, the European Union formally adopted the Markets in Crypto-Assets (MiCA) regulations, paving the way for the implementation of the groundbreaking regulations concerning crypto assets and service providers.

The EU’s regulatory package, which was first drafted in 2020, will be responsible for controlling the issuance and range of services related to the cryptocurrency sector.

On April 20, the European Parliament adopted the MiCA regulations, which were then forwarded to the European Council for approval. On May 31, Roberta Metsola, President of the European Parliament, and Peter Kullgren, Swedish Minister of Rural Affairs, signed the framework into law. Sweden is currently the presiding nation of the Council of the EU.

On June 9, MiCA was published in the Official Journal of the European Union (OJEU), beginning the time limit for the law to take effect. This implies that crypto firms have certain deadlines to put into practice and adhere to MiCA’s regulations. The regulations concerning stablecoins will be applicable from June 30, 2024, and those for exchanges will become effective on December 30, 2024.

MiCA outlines that a crypto asset is a digital representation of value or rights which can be transmitted and stored electronically, employing distributed ledger technology or a similar technology. The legislation also provides insight into what is considered “cryptocurrencies” and what renders certain digital assets “tokens.”

Additionally, MiCA sets standards for Crypto Asset Service Providers (CASPs) and those who issue cryptocurrency assets. Such issuers must abide by regulations regarding disclosure and transparency, providing thorough and clear data about the crypto assets they are issuing. Furthermore, CASPs must take security precautions and comply with Anti-Money Laundering regulations.

The MiCA legislation creates CASPs as distinct legal entities. Service providers can acquire a permit in any of the 27 European Union countries and operate there. Service providers must be able to combat market manipulation and exploitation, and will be monitored by regulatory bodies such as the European Banking Authority.

Stablecoin service providers must present a white paper containing essential information about the product and the people involved in the business. The white paper must also include the conditions of the public offering, the blockchain verification process it will employ, the privileges linked to the applicable crypto assets, the main hazards for investors, and a summary to aid prospective purchasers in making an informed decision regarding their investment.

MiCA will not be applicable to digital assets that are classified as transferable securities and act similarly to shares or their equivalents. EU legislation does not cover non-fungible tokens (NFTs) or crypto assets already identified as financial instruments under existing laws.

MiCA does not regulate either the European Central Bank’s digital currency, digital assets issued by national central banks, or services related to crypto assets provided by those institutions.

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David Schwed, the leader of blockchain security company Halborn, declared to Cointelegraph that the MiCA is a critical progress, showing that a thorough system can be set up to give precise guidance to certain market categories. He continued by saying that although the MiCA rules out some areas of crypto, such as NFTs and decentralized finance, the regulations are an important advancement.

Schwed commented that this regulation is a major advancement for the crypto community, providing a standardized structure for all EU nations and establishing a model that he believes and hopes the rest of the world will follow.

Europe takes the crypto lead

The enactment of the MiCA regulations, about two years after they were initially suggested, has given some regulatory certainty to cryptocurrency businesses in Europe. Although not flawless, crypto organizations now have explicit rules to follow and access the market.

In comparison to the United States, which has no set laws and is seeing increasing enforcement actions against numerous crypto exchanges, Europe may become a more significant crypto hub.

Binance CEO Changpeng Zhao expressed enthusiasm over the recent introduction of MiCA, noting that there are numerous business opportunities for compliant crypto service providers in Europe.

Zhao’s remarks were in response to the lawsuit that the U.S. Securities and Exchange Commission recently filed against Binance and its CEO, alleging violations of securities regulations.

Kadan Stadelmann, the CTO of Kodomo, an open-source blockchain technology firm, told Cointelegraph that although the efficacy of MiCA may be contested, it is certain that MiCA is establishing the foundations for crypto regulation around the world.

Alex Shevchenko, the CEO of layer-2 platform Aurora Labs, told Cointelegraph that the implementation of MiCA could potentially have an effect on U.S. policymakers and regulators, finding a balance between consumer protection and market growth. This, in turn, could lead to elevated cooperation and synchronization between different jurisdictions.

Members of the U.S. House Financial Services Committee are currently in the process of creating a draft bill that seeks to create more precise regulations for certain cryptocurrencies and place stablecoins under the oversight of the Federal Reserve.

Crypto legislation around the globe

Although MiCA is currently the only regulatory framework to oversee certain crypto activities in 27 countries, many jurisdictions have been creating their own crypto legislation in recent years.

Joey Garcia, the head of regulatory affairs at Xapo Bank, said to Cointelegraph that the MiCA framework is frequently only compared to the regulatory framework in the United States, but in his opinion, this is too limited of a comparison when taking into consideration the global, cross-border, and digital nature of the industry.

Garcia asserted that the rest of the world could benefit from taking cues from MiCA, demonstrating how to apply traditional financial services strategies to emerging crypto technology. Additionally, he noted that regulators outside the EU “will need to not only establish standards, but also be able to monitor and oversee the businesses that adhere to them.”

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The grant of approval from MiCA has been made as Hong Kong is setting itself up as a crypto centre for the region, allowing for its own regulations that are distinct from China’s overall prohibition.

Stadelmann believes that Hong Kong has the potential to become an even bigger hub for cryptocurrency than Europe. Before the Chinese government prohibited crypto-related businesses in 2021, Hong Kong was home to a number of developing crypto startups. With more regulatory clarity in 2023, he believes that more crypto startups will begin to view Hong Kong as a viable option.

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