July 4, 2024, 4:04 pm | Read time: 3 minutes
The MiCA regulation, or MiCAR (Markets in Crypto-Assets Regulation), came into effect on July 1, 2024. This name represents a long-awaited EU-wide directive for the entire crypto sector.
The European legislator has taken a decisive step with MiCAR to make the EU globally competitive in blockchain matters. The process leading up to the regulation’s implementation was met with much recognition, but also some concerns.
Regulation for Crypto in the EU
German politicians were also prominently involved in the complex and lengthy drafting of the directive. Notably, Europe can apply a regulation tailored to digital assets sooner than, for example, the United States.
MiCAR only regulates the basic permission, allowing individual states to shape it themselves. Through the so-called passporting principle, financial instruments from one state also have an effect in other EEA states. This allows smaller countries to avoid the cumbersome process. EEA means: EU plus Norway, Liechtenstein, and Iceland.
MiCAR’s content involves licenses and standards for crypto service providers and the obligation to cooperate with financial supervisory authorities. Additionally, investors and users are to enjoy more protection and rights than before.
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Stablecoins and MiCAR
Questions surrounding so-called stablecoins, cryptocurrencies that are pegged to the value of the U.S. dollar, euro, or other government currencies, have been a focus from the start.
On the very day the MiCA regulation came into effect, the global fintech company Circle announced the licensing of its stablecoins USDC and EURC. The latter does not yet play a significant role. However, USDC is the sixth-largest cryptocurrency by market capitalization and the second-largest stablecoin.
The largest and most important stablecoin, USDT, is navigating turbulent waters in Europe. There are reportedly concerns among regulatory authorities regarding its European licensing as an EMT (E-Money Token). Several centralized crypto exchanges (CEX) have already responded by announcing they will no longer offer USDT to European users.
Dangers of Regulation
The example of the situation surrounding the stablecoin USDT clearly illustrates one of the main risks of MiCAR: If it becomes too complicated for investors and traders to acquire and trade cryptocurrencies through EU-licensed providers, at least some users will turn to the unregulated space. For instance, some crypto derivatives like futures are only tradable via USDT on many CEXs.
Crypto is a global industry. If investors’ need for security clashes with the usability of blockchain infrastructures, many will reluctantly turn their backs on the regulated space. One can hope that the MiCAR custodians in Brussels and Strasbourg keep this factor in mind. User-friendliness and practicality are highly valued in an industry with global competition.
All references and information mentioned in the text do not constitute investment advice or a recommendation to buy or sell securities (§ 85 WpHG).