Moctar BouraimaRecently, the crypto-asset ecosystem has been shining under the spotlight of new regulations. This is the famous MiCA law, approved by the European Parliament on April 20, 2023 and likely to profoundly change the cryptocurrency industry in Europe.
This new rule guarantees the execution of specific measures to allow better protection of investors. Its ultimate goal is to put an end to the abuses observed in the market.
With MICA, professionals in the bitcoin sector will now have to provide proof of their qualifications to continue working on European soil. A series of new procedures are also being put in place to regulate crypto activity on the continent and prevent possible fraud.
Find out in this article everything you need to know about the introduction of the first legal framework for cryptos.
MiCA regulations: what is it?
MiCA represents the first EU regulation governing the sector cryptocurrencies. Centralized exchanges, stablecoins, and the organizations that issue them are now all governed by its articles. However, it is important to note that NFTs and DeFi specific products are not covered by MiCA, for the time being.
The primary objective of regulators is to give legal status to cryptocurrencies. These are divided into three groups including:
- Currencies that are linked to multiple commodities, other assets or different currencies;
- Currencies that are linked to a single fiat currency, such as certain stablecoins;
- All other tokens that do not fall into any of the above categories, such as those linked to products or services.
This is because a different authority oversees each of these cryptocurrency categories. For the first, it is the European Securities and Markets Authority (ESMA). As for the second, it is the European Banking Authority (EBA) which takes care of it. The third category, very diversified, is not linked to any and is managed by the platforms which issue the tokens concerned.
The different objectives of the MiCA law
The adoption of the new law aims in particular to protect users, fight against money laundering and reduce the impact on the environment.
👤 User protection
The aim of the MiCA regulation is to direct users towards registered platforms and service providers. This will help prevent various crises and scams of which investors have been victims until now.
In fact, several countries already have a system in place to allow companies to provide cryptocurrency services. This is particularly the case of France with its PSAN license.
However, with the adoption of the new MiCA standard, the control systems of each country will be grouped under a single status. Furthermore, the new text imposes certain additional conditions on companies wishing to be eligible. These especially range from retaining consumer data to verifying promoters.
In this way, future cryptocurrency investors will now be able to turn to these suppliers knowing that they have been verified and approved by the government. Additionally, MiCA requires crypto companies to inform all their users about the risks of investing in cryptoassets.
It also provides that registered companies will be held responsible in the event of problems. For example, they will be held accountable if they become the target of a hack. We note here a fierce desire to protect investors, by requiring service providers to be as careful as possible. But the guidelines don't stop there!
The regulations also stipulate that stablecoin issuers will be required to maintain 1:1 reserves on customer deposits. They are therefore required to reimburse investors upon request. As regards currencies linked to currencies other than the euro, they will be subject toregulation and stricter control.
???? The fight against money laundering
This regulation is also part of the European Union's 2021 initiative on money laundering. Registered service providers must identify their customers and maintain a record of all their transactions in order to prevent the leakage of money. The addresses of senders and recipients of cryptocurrencies will be recorded and each transaction can be tracked.
Similarly, cryptocurrencies that promote anonymity could be banned in the European Union in an effort to eradicate fraud. When it comes to monitoring unhosted wallets, uncertainty remains.
Exchanges should notify any transaction made on one of them. This, although it is suggested that the information of the owners of these wallets is also verified and retained.
Finally, suppliers will be required to inform the authorities in the event of suspicion of fraud. They may also reserve the right to block the transaction if necessary.
The environmental Protection
AMCE's cryptocurrency laws also aim to reduce the impact of cryptocurrencies on the environment. This is a concern that is close to the heart of Committee on Economic and Monetary Affairs of the European Parliament.
The latter had also tried to ban cryptocurrency networks from Proof of work like Bitcoin (BTC) when the new regulations were first considered. However, it is not technically possible to ban Bitcoin and the commission then had to soften its position on this issue.
Nonetheless, it remains committed to reducing the environmental damage caused by cryptocurrency mining. Therefore, MiCA provides that companies that mine cryptocurrencies are required to submit a periodic report of their consumption.
The different requirements of the MiCA law
In order to curb the risks of fraud in the cryptocurrency market, the EU has addressed a number of key points.
CASP status
In order to adopt its new status on cryptos, the EU drew heavily on the French system in the field. In fact, the PSAN is considered difficult to obtain due to its level of requirements, which explains why no company has been able to obtain your certification until now.
In addition, it is not an obligatory pass for crypto companies. It is quite the opposite of the CASP which will be crucial in relation to the MICA regulations. His goal ? Getting rid of dubious players in the cryptocurrency market who are not trustworthy.
Transaction tracking
Once again, this idea is borrowed from France, particularly inspired by the “ Travel Rules ". This is a regulation put in place for activities carried out in the financial world.
Here all the information related to the individuals will be available when they make the transactions. If the first transfer is greater than 1 euros, the platforms will have to set up a identification check systematically.
The directory of non-compliant PSAPs
MICA wants to inform customers of the list of cryptocurrency exchange services that do not adhere to the standards set by the EU. Its aim is to bring as much transparency as possible to the choice of European consumers.
Stricter regulation of tax havens
Companies specializing in cryptocurrencies and which do not adhere to the EU charter will be subject to ten times more control. Even if Europe is generally considered to be a " crypto-friendly", the laws will allow a clean-up of behavior.
Regulation of energy consumption
The EU has been working hard for months to reduce its impact on energy. Thus, the use of energy by cryptocurrencies does not escape this standard.
Stablecoin Regulations
For the cryptocurrencies backed by fiat currencies, a liquidity reserve will be required. It is a liquidity deposit that can withstand a change in investor sentiment. The supervision of the EBA (European Banking Authority) will be introduced in this new stablecoin regulation provision.
This applies to stablecoins backed by the euro but also all other stablecoins.
MiCA Regulation on Cryptocurrencies: Pros and Cons
If you reside in the European Union, the new regulations will apply to you, regardless of your level of experience with cryptocurrencies. Let's examine the advantages and disadvantages of MiCA regulations.
Benefits
MiCA provides greater clarity regarding European regulation on cryptocurrencies. In fact, it is the most comprehensive regulatory framework for the cryptoasset sector. Thanks to this text, the crypto companies will have a solid legal basis within the EU.
The new regulations also provide a more robust protection framework for investors. According to the law, service providers and issuers are responsible for all losses that would occur on the platforms.
Drawbacks
The main drawback of the MiCA law is its impact on anonymity and privacy. According to an AMCE regulation, withdrawals of more than €1 to self-hosted wallets (non-custodial) must be disclosed.
This goes against the ethics and philosophy behind blockchain technology in many ways. Recall that Bitcoin was first sent to a group of cypherpunk who defend individual freedoms.
Apart from that, it is difficult to control new regulations, as cryptocurrency users who are keen on their anonymity online can easily bypass them. Likewise, private cryptocurrencies like Monero and dApps offer effective ways to circumvent these rules. They were specially created for avoid conventional tracking techniques.
What impact will MiCA have on crypto investors?
In terms of protection, MiCA legislation is expected to benefit investors. THE investors will be better protected against the dangers of investing in digital assets. They may require service providers and issuers of cryptoassets to adhere to specific standards of conduct. However, it is a double-edged sword.
Indeed, requiring authorization for crypto companies may exclude certain investors from digital assets market. Companies can leave the European market if they are unable to obtain these authorizations or if they have to pay astronomical fees to obtain them.
Likewise, the MiCA regulations can reduce the trend of innovation in the digital asset market. In particular, we may see an increase in costs and the advent of several regulatory barriers. Reasons enough to prevent innovative projects from seeing the light of day.
Conclusion
The MiCA Regulation is an important proposal from the European Union aimed at controlling digital assets with the ultimate aim of improving the taxation of crypto-assets also. It aims to protect investors, to define the legal status of cryptoassets and promote innovation.
However, this regulation may also result in higher prices for service providers and issuers of cryptocurrency assets, as some fear decline in the trend towards innovation in the area.
Others think that this will scare away crypto companies who will look for other, more flexible jurisdictions….
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