In the gloomy mid-crypto winter, a regulatory thaw begins

In the world of crypto-regulation, there are decades where nothing happens, and then there are weeks where decades happen.

Last month, for those who were excited about the next stage of crypto history, was the latter.

The European Commission, the executive part of the bloc with 27 members, agreed on how crypto should be regulated. The Regulation on Markets in Crypto Assets (MiCA), is a comprehensive regulation that will try to tame the “wild west” reputation the industry has developed.

Arvin Abraham, a partner in the law firm McDermott Will & Emery, said that the EU’s agreement on regulations (MiCA) is a landmark.

“It represents the first comprehensive and harmonized regulation of cryptocurrencies by a large group of states and establishes necessary guidelines to protect consumers,” he said.

“In particular, it reduces anonymous transactions, imposes reserve requirements on stack coins and a number of criteria for token offers (depending on size thresholds), requires registration for certain service providers and more.”

Regulation, good or bad?

Crypto supporters, especially those with a professional interest as founders and investors, hope that the incoming legal and regulatory security for the market will mean that more crypto companies invest and innovate throughout the region.

Charles Delingpole, founder and CEO of ComplyAdvantage, agree that many crypto companies understand that the sector needs a regulatory parity with fiat.

“Crypto can be sustainable. But to do so, it will have to comply with the basic standards that make any financial system work, including the need for financial stability, consumer protection, financial crime measures and market behavior guidelines.”

Katie Fry-Paul, a crypto-regulatory expert at the law firm Taylor Wessing, added MiCA is likely to drive innovation, as cryptocurrency service providers seek help from technology providers to secure their services.

“[This then] will reduce the risk of the supplier being liable for the loss of consumer crypto assets, “she said.

While few see the MiCA regulation as anything other than a net positive for the crypto- and digital asset world, the competition to establish the first dominant ecosystem in Europe, as London has become too fintech, is still playing out.

As Britain’s Chancellor Rishi Sunak, City Minister John Glen – not to mention dozens of other ministers and senior politicians friendly to fintech and crypto – have left their posts since MiCa was unveiled, Britain’s bold plans to establish a cryptocurrency hub seem uncertain.

In April, Glen gave a speech that the UK would launch a stablecoin-friendly environment, as well as proactively explore how blockchain can support the infrastructure of UK financial markets.

Will the British government – whatever that means in the short and long term – continue to look to make Britain a “crypto-hub”?

The key to this will now be to look at the new MiCA era and ask if it goes too far and potentially pushes cryptocurrency service providers out of the EU, Fry-Paul said.

Or will it provide just the right amount of legal certainty, while at the same time attracting innovative firms to the block?

“While it is clear that the EU’s work on this issue is well advanced, this does not mean that the UK’s hopes of being the main jurisdiction for crypto – active companies are shattered,” she said.

“Time spent on reconnaissance is rarely wasted, and the preliminary agreement on MiCA could give the UK an opportunity to measure industry visibility, and take advantage of its agility to take swift action.”

Neal Wilson, co-CEO of EJF Capital, said that “everyone” in the digital currency ecosystem is a winner as a result of MiCA.

“For consumers, the regulation provides tacit support for the technology and provides reassurance that digital currencies can operate and be used safely, which can encourage more widespread use,” he said.

“For companies in space, more customers means more opportunities to serve them through innovation. For the market, these growth opportunities can encourage more investment in the industry.”

Apart from politics, this, together with other factors, moves the crypto area much closer into the financial mainstream, with blockchain technology increasingly being decoupled from widespread speculation in cryptocurrencies.

For example, Société Générale-Forge, the digital asset arm of the French investment bank, has entered into a partnership with the Swiss company METACO to expand its institutional offering of digital assets, including digital securities such as the issuance of security tokens including a 100 million euro digital bond from European Investment Bank.

Last month, in a discussion ahead of the MiCA announcement about the future of crypto and the use of blockchain technology in regular finance at the French Embassy in London, regulators and senior bankers gave an optimistic view that change was growing for crypto. ‘.

Gilbert Verdian, founder and CEO of Quant, told ETF flows sister publication AltFi that blockchain will have a profound impact on financial services – especially in asset management via tokenization of funds, capital markets, and perhaps most importantly, in payments and money movements.

This new technology can significantly reduce costs by reducing the need for counterparties and complex processes, enabling new business and revenue opportunities.

“Stricter regulations such as MiCA should be welcomed, as these provide guidelines for how stable coins and other digital assets can work,” Verdian continued. “It is important not only from an operational perspective, but also from a reputational point of view.

“Many of our customers have told us that clearer rules and guidelines regarding stablecoin-backing and ESG will encourage more business cases to drive investment and adoption.”

The regulation, he added, also balances the need for central banks to reduce systemic economic risks against the need for new commercial development and innovation of stable coins.

“There are less onerous obligations for less stable coins; NFTs are outside the scope. The EU is creating an environment that encourages the development of blockchain use cases while maintaining monetary sovereignty and control, he said.

The crypto winter has arrived

Don’t let the summer heat wave fool you. Sentiment towards crypto is very low due to the crash in the prices of digital assets.

The so-called ‘cryptocurrency winter’ in 2022 where 2 billion dollars has been wiped out of the value of the major cryptocurrencies such as bitcoin and ethereum is in full swing.

“The second ‘crypto winter’ is upon us, where we see high-risk cryptocurrencies, algorithmic stack coins and DeFi projects falling in value,” said Verdian. “The ongoing failure of unregulated and volatile crypto has damaged the public perception of the blockchain, although this is a bit like blaming the central bank for the crimes of a malicious money launderer.”

Szymon Sypniewicz is the co-founder and CEO of Ramp, a startup that wants to be “Paypal” of crypto ‘. Ramp recently raised $ 53 million, at the end of 2021, before cryptocurrencies fell and a bullish trend among VC investors took at least a temporary break.

Sypniewicz told AltFi last month that he agrees that we are currently in the middle of another crypto winter, but that the reasons are more to do with the broader economic conditions rather than some deterioration in the long-term case of crypto.

“We were on time for a long time with a crypto winter … but this is mostly related to broader macro,” he said.

While some people link it to recent incidents in the crypto space such as the Terra Luna hack, Sypniewicz said this is incorrect.

“I just think it’s the broader macro and how our cryptocurrencies in general are still perceived as relatively high risk”

“I also do not want to link this to inflation. I would say that this is related to the central bank’s reaction to inflation being a tightening of monetary policy. In that scenario, it is quite obvious that the most risky assets face some problems when capital flows back or is rolled back to some of the assets that are perceived as lower risk. ”

For startups like Ramp, which has recently raised money, this means three things, he said.

“It’s great because a market that is overheated does not really allow everyone to clearly cut the signal from noise,” he continued. “This means that talent becomes harder to get hold of, as people join more new initiatives and more new startups and start getting excited about things that are very speculative.”

In addition, he said, each decline in sentiment against crypto brings some clarity back to the market.

“This means that projects with existing traction and a real business plan and business case that are financially stable and viable can have access to better talent and also more residents,” he said.

Finally, and arguably most importantly, he argues that all volatility is positive for companies offering underlying platform services.

“[For Ramp], it does not matter if things go up or down. If there is any movement in the markets, it really helps. You can clearly see that exchanges thrive both in bull runs as well as when corrections come.

“This allows us to prepare for probably a longer period or relative stability. That’s really when the market goes sideways, or all things flatten out where companies like crypto exchanges really suffer.”

Sypniewicz added that several “real” utility cases are being built where the price of cryptocurrencies does not matter because transactions are made with stack coins.

Depending on how long the crypto winter lasts, and how long it takes for legislation in the UK to come into law, the next stages are important to look at. Until then, some thawing has begun. Whether the same applies to the price of bitcoin is becoming less and less important.

This story was originally published on AltFi

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