The European Union (EU) has been looking to regulate crypto for a while. They are now negotiating legislation on crypto-assets. Here’s what you need to know!
With the increased popularity of Crypto it was only a matter of time before the EU stepped in (again) and re-upped their efforts to regulate crypto-assets. In contrast, countries such as El Salvador and Japan have made Bitcoin legal tender! The European Commission’s (EC) proposed Regulation on Markets in Crypto Assets (MiCA) is currently being read in the Council and the European Parliament (EP). Several aspects of the technology could be impacted, so we’ve compiled a list of 5 things you need to know about the incoming EU crypto law.
5. The law will apply to cryptocurrencies that do not qualify as financial instruments
MiCA will only focus on cryptocurrencies that do not qualify as financial instruments – this includes utility tokens and payment tokens. The logic goes that due to the decentralised nature of the technology, that would mean that individuals cannot go to the authorities in cases of fraud, hacking or accidental loss of funds.
What the EU is proposing is to give crypto exchange users (which the regulation calls “crypto asset services”) consumer protections, transparency, and governance standards. On the other hand, the exchanges will not be required to provide insurance to the aforementioned cases.
This piece of legislation will not impact blockchains, DLTs or digital currencies issued by states and regulated by central banks.
4. Stablecoins will be overregulated
Stablecoins are cryptocurrencies whose value is tied to another asset such as fiat money or precious metals. This allows them to retain a stable value – or as stable as the asset they are tied to remains. The two primary uses include being used as a safer alternative to fiat to return interest and yield, and the other use is to trade more efficiently on an exchange – again because of fiat’s inflexibility.
Through the legislation being discussed, existing stablecoins will have to seek authorisation from the regulatory authorities to be traded in the EU. New ones will also need this authorisation to be traded within the EU. There will also be a prohibition on the issuance of interest to e-money tokens (stablecoins whose value is pegged to a single fiat currency). Stablecoins may also fall into the “significant asset referenced tokens” which is determined based on the criteria listed in Article 39 of the regulation.
3. A Higher barrier to entry for start-ups
The regulation will make it a legal obligation for crypto projects to issue a white paper and submit it to regulatory authorities. The authorities will have no power to approve or reject any, other than stablecoins. They will also have to be established as a legal entity in one of the member states. This means that there will be a new hurdle for anyone looking to enter the industry.
The regulation doesn’t, for example, require the explaining of the distribution and vesting schedule of tokens (tokenonomics). The release of cryptocurrencies will also be subjected to a “qualified investor” standard which means that ordinary citizens will have to wait longer than more wealthy people to acquire crypto whilst also being subjected to a higher standard of regulatory compliance.
2. Crypto influencers may not have as much influence anymore
Potentially having something to do with Elon Musk’s antics on social media, the regulation would prohibit this kind of market manipulation. Interestingly the EU is also prohibiting the acquisition of a dominant position in crypto markets. This is a new concept to their competition rules as existence or acquisition has been allowed, but this would totally prohibit the practice.
1. The enforcement model will have both decentralised and centralised elements
National authorities will be primarily responsible for the regulations’ enforcement, as well as the employment of national procedural rules and the imposition of remedies foreseen in national law when regulation is enforced. In spite of this, European Banking Authority and the European Securities and Markets Authority will also be given noteworthy powers to supervise and investigate the sector. The European Central Bank will also be involved in the stablecoin approval process via a “non-binding” opinion.
On top of this, the EC will be able to adopt delegated acts to determine further details of the regulation.
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