🌟Star performer: MiCA
crypto regulations
Hey there 👀
It's finally here—the moment we've been waiting for: the discussion on MiCA. We understand that it might seem a bit complex and lengthy (and of course boring), but worry not!
I will start with the basics and cover the most important points you need to know. We'll take it step by step, ensuring that we make MiCA easy to understand and its significance crystal clear.
-this is a special edition, we wont have the routine recommendation and wrapped the week part-
Enjoy the read!
🇪🇺 The “One” — MiCA
📢 EY UP degens, regens and other cryptoheads. Finally we have got a comprehensive regulation. Great news from the EU!
🥁 They've just given the final thumbs-up to a massive set of new rules for crypto. This puts the EU at the top of the pile when it comes to regulating this wild west sector of finance. After “could not be a tech leader”, EU wanted to be the “technology regulations’ leader of the world” — anyway, let’s skip this for now.
So, you've probably heard the acronym 'MiCA' bouncing around the crypto world lately — i mean for almost 4 years. If you are not in the know, don't sweat it - Nesoş got you covered. MiCA stands for the Markets in Crypto-Assets Regulation, which is the newest kid on the crypto rulebook block for the EU. IT's been in the works since 2020. After getting a nod from the European Parliament in April, it's expected to start rolling out bit by bit from July 2024.
What is the strategy?
You know, I've talked about this a lot in my CoinDesk articles and newsletters. Lately, EU has been on a tear with all these tech regulations. It's like they have given up on trying to keep up with the US and China in the tech race.
Then the thing is “… ok if we can't be the big name in tech development, then we may as well set the standard for tech laws.” 👑 GDPR is the queen when it comes to personal data. And now, we're all looking at Europe's DMA and DSA to figure out e-commerce and social media.
We know China's pretty strict with this “democracy, parliament, regulation…” stuff, and the US? Well, they're just adding court rulings onto their old laws to keep up. Now that we're in this crazy race for AI development between the US and China. However; everyone's eyes are on Europe again, waiting to see what regulations they'll come up with for this scary AI tech.
So yess, EU may not be the top dog in tech development, but they're trying to make a name for themselves by being the clear voice in tech laws. Their strategy? Attracting top tech to their countries by being the go-to place for clear and fair regulations.
👣 Let’s step back a little
How EU regulators’ “crypto-ambition” started
Let's rewind to 2018. The Commission asked financial watch dogs to look into how EU financial law applies to crypto-assets like Bitcoin. Fast forward to 2019, and the European Banking Authority (EBA) reported that crypto-assets mostly don't fall under EU law. But, they also flagged that these assets could pose serious risks to consumers and could be a hotbed for money laundering. Their advice to the Commission was simple: it's time to act.
Now let's talk about June 2019. That's when the notorious Diem (previously Libra) project decided to launch from Geneva - right in the heart of Europe (but outside the EU). This sent EU and national government policymakers into a bit of a frenzy.
You can see this focus on Diem and stablecoin projects in the final MiCA legislation, which introduced two new token categories - asset-referenced tokens (ART) and e-money tokens (EMT) - matching Diem’s first and second versions of stablecoin token concepts.
Then came the 5th Anti-Money Laundering Directive in the EU in 2020, which resulted in a hodgepodge of national crypto registration and licenses. Some countries like Germany, Austria, Malta, Lithuania, and France rolled out dedicated crypto licensing regimes. Calls for one uniform set of rules started to get louder from the industry, regulators, and policymakers, partly to stop regulatory dodging.
With all these factors in play, the EU decided it was time to step up and really take charge. It was time to roll up their sleeves, dive into the nitty-gritty, and come up with a plan that not only made sense, but could also set the stage for other regions around the world. And let's be real, that's no small feat. But if there's one thing to take away from all of this, it's that the EU isn't one to back down from a challenge
What is in it?
MiCA has been met with a mixed reaction from the cryptocurrency industry. Some have praised the regulation for its potential to protect consumers and promote financial stability. Others have criticized the regulation for being too restrictive and for stifling innovation in the cryptocurrency industry. So let’s check a little…
CASPs: MiCA is basically not going to touch crypto assets that already fit into current financial laws, especially those "financial instruments" defined under MiFID II. This includes stuff like deposits, insurance, and pension products. But MiCA will apply to "e-money tokens", you know, those that need to be issued by e-money or banking institutions.
Alright, let's break it down a bit. Firms already regulated under MiFID offering services for traditional asset classes, like securities broker dealers, won't need an extra MiCA license to offer similar services in crypto, such as crypto brokerage. They just need to notify the competent authorities and demonstrate their technical skills.
Other companies that seek to offer one of the following crypto-asset services will need to get licensed as a CASP by one of the EU national competent authorities.
Custody and administration of crypto-assets
Operation of a crypto-assets trading platform
Exchange of crypto-assets against fiat or against other crypto-assets
Placement of crypto-assets
Reception and transmission of crypto-asset orders
Advice and portfolio management of crypto-assets
NFTs: Now, onto the fun stuff, Non-Fungible Tokens (NFTs). This regulation is taking an interesting approach. Unique and non-fungible tokens, like digital art and collectibles, are not under MiCA. But here's the kicker, Recital 11 mentions that if NFTs are issued in a "big batch or collection", they might actually NOT be considered non-fungible. This could mean that their issuance and any services built around them, like an NFT marketplace, might have to follow MiCA's rules.
CBDC: Also, MiCA won't touch digital currencies issued by central banks or international bodies like the International Monetary Fund. And it won't mess with crypto assets tied to blockchain loyalty programs. If a crypto asset doesn't have a clear issuer, MiCA only sets the rules for the service providers related to those assets.
ART: If you want to publish an ART white paper, you need a clear thumbs-up from the national competent authority. And if you're issuing ARTs, you've got to be incorporated in the EU, meet certain financial safety-net requirements (like having 2% of the ART supply in your "own funds"), meet standards for reserve management (in terms of segregation, custody, investment, and so on), and have plans in place in case things go south and you need to wind down or resolve issues.
DeFi: One more thing, MiCA won't cover decentralized finance institutions that provide financial services through blockchain platforms if they operate completely decentralized and without any middleman. But it's not totally clear what "completely decentralized" means here.
If you're a DeFi project and want to stay off the EU's radar, there are a couple of things you're going to have to clear.
First up, you've got to show that you're fully decentralized. And I'm not just talking about on a tech level, but also when it comes to governance and legal matters. That's not an easy feat, and the EU isn't going to let you slide by on a technicality. They're shutting down any possible loopholes, so you better believe they'll be keeping a close eye on this.
So, what's the alternative? Well, DeFi projects have another option, but it's not exactly a walk in the park either. They could operate on what's called a reverse solicitation basis. This basically means they can't go after EU customers. So, if you're thinking of going down this route, you better be sure you've got a solid game plan in place, because this isn't something you want to mess up.
Lastly, a lot of MiCA's rules overlap with other directives and regulations like MiFID, the Second Electronic Money Directive, the Capital Requirements Directive, and the Market Abuse Regulation. So, it's like they're trying to prevent any sketchy stuff like insider trading and market manipulation.
These new rules are not just a response to a bunch of high-profile crypto disasters, including the meltdown of the trading firm FTX and the crash of the TerraUSD stablecoin; but these issues burst regulators into anger. The genesis started before these.
The aim is to, of course, protect the consumers, make things more transparent, fight against money laundering, and cover stablecoins (those are the ones tied to stable currencies like the dollar or assets like gold, which makes them less bouncy than other cryptos).
Also in the spotlight are other digital tokens and Bitcoin-related services like trading platforms and digital wallets. But the rules don't touch Bitcoin itself.
👀 What does this mean for EU?
MiCA is a big deal for the crypto industry in the EU. Until now, EU crypto companies had to juggle rules from every single country in the EU, which was a real headache. With MiCA, it's like having a golden ticket - get a license in one country, and you're good to go in all 27 EU countries.
👉🏻 This is going to make a big difference for EU startups who have been struggling to compete with the big dogs in the US and Asia. Plus, it's going to put a stop to offshore companies who are not playing by the rules and trying to lure in EU customers.
MiCA could make the EU a more attractive place for crypto businesses, and could be a real game-changer for the EU economy. But, it all depends on how things play out over the next year or so, as the rules get put into practice. The worst-case scenario is that EU startups struggle with legal costs, stablecoin issuers avoid the EU, and exchanges face tough requirements that make them less competitive.
Also, there's still some ambiguity around how MiCA will apply to NFT and DeFi projects. If it gets too tough, these projects might just pack up and leave the EU.
And for the global?
MiCA has the potential to become the global regulatory standard for crypto, much like GDPR is for privacy, as said before.
It's set to have a big influence on other regions, especially those with less experience in financial regulation. The EU, being the largest internal market globally, will likely prompt many international companies to align with MiCA standards. However, the real test of MiCA will be its practical success.
You know I have mentioned in my previous articles, this will definitely prompt the USA and other G20 countries. If it proves workable for the industry, consumers, and regulators, it'll make global waves. But there's still a lot of work ahead for its implementation. Given the recent collapse of FTX, even staunch crypto supporters agree that reasonable regulation is needed. MiCA is currently the most comprehensive crypto regulatory framework globally, and the industry should seize this opportunity to shape its future.
📅 Milestones:
July 2019: The European Commission (EC) proposes MiCA.
October 2020: The European Parliament (EP) and EC begin negotiations on MiCA.
June 2022: EP and EC reach a provisional agreement on MiCA.
March 30, 2023: MiCA is officially adopted by the EP and EC.
April 27, 2023: MiCA is published in the Official Journal of the European Union. (the act will enter into force 20 days after publishing in the Journal)
May 17, 2023: MiCA enters into force. (I mean, today:))
Nov 17, 2024: MiCA enters into application for stablecoins and stablecoin issuers. (the grace period is not the same for each subject)
May 17, 2025: MiCA enters into application for other crypto-assets and CASPs.
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