MiCA: Crypto’s big reset?
Europe is taking a lead to bring crypto in from the cold.
It is hard to pinpoint exactly when crypto’s existential crisis began.
A sensible range would be somewhere between the millions of dollars 'invested' in the speculation frenzy over digital pictures of lethargic cartoon apes (May 2022) and the collapse of FTX (November 2022).
During this period, the European Union’s legion of lawmakers and civil servants were busy working on the Markets in Crypto Assets (MiCA), which was passed for final approval yesterday by a huge majority f 517 to 38 MEPs.
The legislation is the first major regulation to harmonise crypto asset rules in a key jurisdiction.
It heralds a potential opportunity to reset crypto towards genuine economic utility and away from the scams, get-rich-quick mentality and overly bold and substantiated claims about upending the entire financial infrastructure. At least, that's what crypto's now heavily 'wintered' industry hopes.
There are some quick wins for crypto firms with MiCA.
Most quickly felt will be that crypto firms will no longer have to juggle 27 different crypto regulatory regimes when operating in Europe, says Janet Ho, Head of Policy for Europe at Chainalysis.
As Mark Foster, EU Policy Analyst at the Crypto Council for Innovation, points out the most valuable outcome is the legal certainty that MiCA offers to the crypto industry.
“There are clear rules for stablecoins and exchanges. These rules cover operations, including registration, reporting and disclosure, asset segregation, and capital requirements,” he said.
“Clarity at the international level will make a big difference and could draw many companies away from the US, bringing new jobs and investment to the region,” he added.
Not only this, but it is also likely to incentivise new investment into crypto companies.
Alisa DiCaprio, chief economist at blockchain outfit R3 meanwhile says MiCA will help enhance some much-needed trust in the crypto industry.
“Smart regulation for crypto like MiCA is critical in providing the required guidelines on how the underlying distributed ledger technology for these assets is applied. This will serve as a platform for future innovation which is vital as global competition across technology and financial services climbs,” she says.
Europe takes the lead
Another important takeaway, despite all the much touted global nature of crypto, is just how divergent and competitive the market is becoming between different jurisdictions.
The EU, in particular France, has staked (pun intended) huge efforts on establishing itself as the leading destination to do crypto business.
“Europe is taking a major stride forward in positioning itself as a leader in digital finance innovation – also highlighted in the recent launch of its DLT Pilot Regime. Regulatory and legal certainty provide the core foundations for any emerging technology to be applied successfully, so the fact that the EU is moving first to lay these foundations will undoubtedly make it an attractive destination for more companies in the space to set up and invest in,” said R3’s DiCaprio.
The UK’s government has also been a keen advocate of the potential for crypto and blockchain technology and most expect it - and the US as well - to accelerate their crypto regulation plans.
In being a first mover, however, the EU has undoubtedly scored a first-mover advantage.
"Digital assets have long needed a regulatory framework that ensures a level-playing field and provides vital investor protection, a core focus of MiCA.
“We believe that MiCA makes Europe fit for the digital age and will foster innovation and fair competition in the industry, leading to increased consumer and investor protection and overall financial stability, said Antoni Trenchev, CEO & Co-Founder of Nexo.
Most experts agree MiCA's approval by the European Parliament is comprehensive in its scope. There are, however, some key missing parts: notably DeFi and NFTs, which are being given a ‘wait and see’ approach as more nascent and avant-garde (even for crypto) parts of the market.
Andrew Whitworth, Policy Director EMEA at Ripple says that now clarity has been provided about the regulatory treatment of the crypto industry,” it is up to the European Supervisory Authorities and National Competent Authorities to develop the specific rules and requirements for firms”.
“Consistency in implementation around the EU will be key in providing crypto companies with the operational clarity to fuel innovation across Europe and guard against unwitting fragmentation of the Single Market,” Whitworth said.
The European Banking Authority (EBA), and the European Securities and Markets Authority (ESMA) will play key roles in the finer details of this.
The EBA will need to provide more operational details and guidance on how stablecoins rules are implemented, for example, says Chainalysis’ Janet Ho.
“Early engagement and consultation on this will be crucial to the seamless operation of MiCA, especially given MiCA’s stablecoins rules are some of the toughest. Similar efforts by the ESMA are equally important to give clarity to market players who intend to operate in the EU and comply with the rules.”
While MiCA’s implementation and enforcement are likely to be its trickiest stages, and the regulation is far from complete enough to please all of the crypto industry - most notably from the ranks of DeFi and NFTs - the EU has established itself as a profoundly more crypto-friendly destination.
More trust, security and clarity could even spur some modest bullishness to return to markets. Let’s just hope it’s not too much.