The European Union’s (EU) cryptocurrency bill, MiCA, passed the Parliament on April 20. What is the potential impact of MiCA on the EU crypto and Blockchain sector and what other regulations can be expected for the rapidly evolving industry?
What’s next for cryptocurrencies as the European Parliament approves MiCA?
On April 20, the European Parliament voted on the Crypto Asset Markets (MiCA) bill, a proposal to regulate cryptocurrencies in the member states of the European Union. The MiCA bill was adopted by 517 votes on that date and is now awaiting the Council of Europe’s approval.
MiCA regulation was a significant development for crypto players in the European region. Prior to MiCA, crypto companies had to comply with 27 different regulatory frameworks in EU member states.
However, under MiCA, EU-wide regulations will apply, allowing companies to operate in the entire EU crypto market with a MiCA license issued in one country. cryptocoin.com As we reported, Binance CEO CZ stated that they will gladly support the new regulation.
MiCA will increase EU’s competitiveness
In addition, MiCA can foster more institutional adoption and activity in the EU crypto and Blockchain sector. Patrick Hansen, director of EU strategy and policy at stablecoin company Circle, says MiCA will enable European crypto companies to scale and grow faster and allow licensed companies to offer their services in the world’s largest single market with around 450 million people:
Legal clarity will also foster innovation among financial institutions that were previously hesitant to launch products and services due to regulatory uncertainty. Additionally, as MiCA is the first comprehensive regulatory framework for cryptocurrencies in a major jurisdiction in the world, it can be expected to attract significant foreign capital and talent to the region.
For Moritz Schildt, a board member of the Hanseatic Blockchain Institute and the German Blockchain Association, the biggest advantage of MiCA is that it “will go into effect this year” and gives the EU a chance to provide a unified regulatory framework for cryptocurrencies.
Noting the changing dynamics of the market, Schildt says, “it should come as no surprise that some regulations are yet to be optimal and questions about concrete implementation remain unanswered,” adding that with MiCA, Europe has the opportunity to “position itself as a place for innovation and quality.”
Non-regulated companies may stay out of the EU crypto market
Peter Grosskopf, co-founder of DeFi project Unstoppable Finance, also believes MiCA will benefit the EU crypto industry. First, companies from outside Europe will need to register with a company in the EU, so there is a “direct impact on job creation and tax payments”.
Second, many jurisdictions take an overly strict approach to regulating crypto. For example, “The U.S. regulates through sanctions.” Compared to other regions, Grosskopf said the EU will “become a safe space for the industry as a whole, and innovators from all over the world will start building their businesses here.”
Stefan Berger also noted that the US is currently putting pressure on the crypto industry. According to the German politician and MiCA rapporteur of the European Union Parliament, the European cryptocurrency industry has regulatory clarity that the US does not have, and it may be wise for US lawmakers to take a cue from MiCA:
The biggest advantage for me is that we create trust, which is a very important boost, especially for young technologies like Blockchain. I expect regulation to become a global standard setter over time. A global MiCA may be desirable at some point.
DeFi, NFT, lending and staking areas not yet covered
Through the MiCA, European policymakers are trying to establish a credible framework that builds trust through legal certainty. This application includes a uniform classification of cryptos and the requirement for companies authorized to issue new tokens to provide a whitepaper explaining all relevant information related to cryptocurrencies, such as energy consumption and environmental impacts.
Additionally, MiCA will ensure that every new token is reviewed for approval to check that its business model does not threaten the stability of cryptocurrencies, which provides greater transparency for investors.
But the crypto and blockchain industry is constantly evolving. “Tokenization is no big deal and will be an integral part of our lives and our financial world,” Berger said. For example, more and more business models are emerging based on NFTs that are largely exempt from MiCA. But NFTs are next, according to Berger, as European lawmakers look to what kind of regulation would benefit the industry and consumers.
Berger also expects more regulation on NFTs relatively soon: “We need to reconsider the traditional classification of investment products.” According to the expert, in the future, “investments that were previously seen as ‘art collections’ will also qualify as capital investments.”
DeFi is another hot topic in European policymaking
Some aspects of MiCA are yet to be defined through upcoming technical standards and guidelines. For example, what are the specific liquidity requirements for electronic money token reserves? Circle’s Hansen said EU regulators will develop these standards over the next 12 to 18 months, adding that “MiCA’s practical success will largely depend on this implementation work – also referred to as Level 2 legislation.”
Hansen also noted that beyond MiCA, EU institutions have finalized a new Anti-Money Laundering (AML) rulebook that will be “critical to crypto firms.” Another critical review is PSD2, the EU’s main payments directive, which will also significantly impact crypto firms:
Finally, in about 18 months, the European Commission will publish a detailed report on DeFi and may take further legal steps to regulate the space. “Brussels is proud to be a global regulatory leader and MiCA is just the first of many steps to take,” Hansen said.
Grosskopf of Unstoppable Finance also expects DeFi regulation to become a hot topic after the next European election round, as MiCA will not apply to “cryptocurrency services provided in a completely decentralized manner without any intermediaries.”
DeFi and NFTs will be next
While it is still unclear how European lawmakers will regulate NFT and DeFi or whether there will be new requirements regarding smart contracts, the success of MiCA, the first step towards regulation, could provide significant boost to both EU crypto businesses and the EU economy as a whole. However, whether this success will be realized will depend on the standards of practical application that will be developed in the future.
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