What’s next for the EU crypto industry as the European Parliament passes MiCA?

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On April 20, the European Parliament voted to adopt the Markets in Crypto-Assets (MiCA) Regulation, the European Union’s main legislative proposal to oversee the crypto industry in its member countries.

The MiCA regulation is an important development for the crypto industry in the European Union. Prior to MiCA, crypto companies had to comply with 27 different regulatory frameworks in EU member states, with Germany or France being expensive and burdensome, for example.

Under MiCA, however, EU-wide regulations will apply, allowing companies to operate across the entire EU crypto market with one MiCA license granted in one country. This will increase the competitiveness of EU startups and could help them gain market share against unregulated competitors.

MiCA will increase EU competitiveness

Additionally, MiCA could encourage more institutional adoption and activity in the European crypto and blockchain market. Patrick Hansen, director of strategy and EU policy at stablecoin issuer Circle, told Cointelegraph that MiCA will allow European crypto businesses to grow and grow faster, allowing licensed businesses to offer their services in the largest single market in the world, 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. Moreover, as MiCA is the first comprehensive regulatory framework for crypto assets from a major jurisdiction in the world, it is likely to attract considerable foreign capital and talent to the region.

For Moritz Schildt, member of the board of directors of the Hanseatic Blockchain Institute and the German Blockchain Association, the biggest advantage of the MiCA is that it will come into force already this year, giving the EU the opportunity to provide a framework unified regulatory framework for crypto-assets and related assets. suppliers.

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Creating a regulatory framework for a technology that sees new developments and growths virtually every month and is evolving as dynamically as the tokenization of investment opportunities is very difficult.

It is therefore not surprising that some regulations are not yet optimal and that questions about concrete applications remain unanswered, said Schildt, adding that with MiCA, Europe has the opportunity to position itself as a place of development. innovation and quality.

Unregulated Companies Excluded from the European Crypto Market

Peter Grosskopf, co-founder of decentralized finance (DeFi) project Unstoppable Finance, is also confident that MiCA will benefit the European crypto and blockchain market. First, non-EU companies will have to register with an EU company, which will have a direct impact on job creation and tax payment.

Second, many jurisdictions take an overly strict approach to regulating crypto. For example, the United States regulates by application. Compared to other regions, the EU will become a safe space for industry as a whole, and innovators from around the world will start to develop their businesses here, Grosskopf said.

Stefan Berger also noted that the United States is currently suppressing the crypto sector. According to the German politician and European Union Parliament rapporteur for MiCA, the European crypto asset industry has a regulatory clarity that the United States does not have, and it would be wise for US lawmakers to s inspired by MiCA:

For me, the biggest benefit is that we create trust, which is a crucial booster, especially for young technologies like blockchain. I expect the regulations to become a global standard over time. A global MiCA would be desirable at some point. An essential NFT regulation

Through MiCA, European policymakers are trying to create a reliable framework that builds trust through legal certainty. This includes a uniform classification of assets and requiring coin issuers to provide a white paper that discloses all relevant information about the coins, such as their energy consumption and environmental impact.

Additionally, MiCA will ensure that each new token is reviewed for approval to verify that the business model does not threaten the stability of the cryptocurrency, which creates more transparency for investors.

But the crypto and blockchain industry is constantly changing. Tokenization is not hype and will become an integral part of our lives and our financial world, Berger said. More and more business models are emerging based on non-fungible tokens (NFTs), for example, which have been largely exempted from MiCA. (The new regulation will only affect crypto-asset service providers that offer services for NFTs).

But according to Berger, NFTs are next in line, with European lawmakers considering what kind of regulation would benefit industry and consumers.

Schildt also expects new NFT regulations relatively soon. The traditional classification of investment products needs to be reconsidered. According to the expert, in the future, investments that were previously considered as art collections, we will also be referred to as capital investments.

DeFi is a hot topic in European policy-making

Some aspects of MiCA have yet to be defined through upcoming standards and technical guidelines.

For example, what are the specific liquidity requirements for e-money token reserves? EU regulators will develop these standards over the next 12 to 18 months, and the practical success of MiCA will largely depend on this implementation work, also known as Tier 2 legislation, Circles Hansen said.

Hansen further noted that beyond the MiCA, EU institutions are finalizing a new Anti-Money Laundering (AML) rulebook that will be key for crypto businesses.

Another critical review is PSD2, the main EU payments directive, which will also have a significant impact on crypto businesses.

And finally, in about 18 months, the European Commission will publish a detailed report on DeFi and may take further legislative action to regulate the space. Brussels prides itself on being a global leader in regulation, and MiCA is just the first of many steps to come, Hansen said.

MiCA will NOT apply to “crypto-asset services provided in a fully decentralized manner without any intermediaries”

The @EU_Commission will produce a report in 18 months assessing the “need and feasibility of regulating #DeFi” pic.twitter.com/utM4kOw4SM

Blockchain for Europe (@BlockchainforEU) April 15, 2023

Unstoppable Finance Grosskopf also expects DeFi regulation to become a hot topic after the next round of elections in Europe, as MiCA will not apply to crypto-asset services provided in a fully decentralized manner without any intermediaries.

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I think it is important to be proactive and start thinking about how to regulate DeFi as soon as possible in order to influence the process, he said, stating that the new AML regulation is currently under discussion and will most likely become a reality before MiCA.

Although it is still unclear exactly how European regulators will regulate NFT and DeFi or if there will be any new requirements regarding smart contracts, the success of the first step towards MiCA regulation could give a significant boost to companies. EU crypto companies and to the EU economy as a whole. However, the achievement of this success will depend on the practical implementation standards developed in the future.

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