The EU agrees to agree on the landmark MiCA cryptocurrency regulation

EU officials on Thursday secured an agreement on what will probably be the first major regulation for the cryptocurrency industry.

The European Commission, EU legislators and member states have reached an agreement in Brussels after hours of negotiations. The move came a day after the three main institutions completed measures to eradicate money laundering in crypto.

The new rules come at a brutal time for digital assets, with bitcoin facing its worst quarter in more than a decade.

The Landmark Act, known as Markets in Crypto-Assets, or MiCA, is designed to make life tougher for many players in the crypto market, including exchanges and issuers of so-called stablecoins, tokens that are meant to be linked to existing assets such as. the US dollar.

Under the new rules, stack coins such as tether and Circles USDC will be required to maintain ample reserves to meet redemption requests in the event of mass withdrawals. Stablecoins that become too large also face being limited to 200 million euros in transactions per day.

The European Securities and Markets Authority, or ESMA, will be empowered to prohibit or restrict cryptocurrencies if they are deemed not to properly protect investors, or threaten market integrity or financial stability.

“Today, we are ordering the Wild West of cryptocurrencies and setting clear rules for a harmonized market that will provide legal certainty for issuers of cryptocurrencies, guarantee equal rights for service providers and ensure high standards for consumers and investors,” said Stefan Berger, legislator who led the negotiations on behalf of the European Parliament.

MiCA will also address environmental concerns about crypto, with companies being forced to disclose their energy consumption as well as the impact of digital assets on the environment.

An earlier proposal would have scrapped crypto mining, the energy-intensive process of embossing new units of bitcoin and other tokens. However, it was voted down by lawmakers in March.

The rules will not affect tokens without issuers, such as bitcoin, but trading platforms must warn consumers about the risk of losses associated with trading digital tokens.

Non-fungible tokens (NFTs), which represent ownership of digital properties such as art, were excluded from the proposals. The European Commission has been tasked with deciding whether NFTs require their own regime within 18 months.

Separately, regulators also agreed on measures on Wednesday that will reduce anonymity regarding certain crypto transactions. Authorities are deeply concerned about the use of cryptocurrencies to launder unwanted gains and evade sanctions – especially after Russia’s ongoing invasion of Ukraine.

Transfers between exchanges and so-called “un-hosted wallets” owned by individuals will have to be reported if the amount tops the threshold of 1000 euros, a controversial issue for crypto enthusiasts who often trade digital currencies for privacy reasons.

The rules follow the collapse of terraUSD, a so-called “algorithmic” stablecoin that tried to maintain a $ 1 value using a complex algorithm. The debacle resulted in hundreds of billions of dollars being wiped out of the entire crypto market.

“The EU is not happy with stack coins in general,” said Robert Kopitsch, secretary general of the blockchain group Blockchain for Europe.

Politicians have been skeptical of such tokens – which aim to be linked to existing assets, such as the dollar – ever since Facebook failed an attempt to launch its own token in 2019. Authorities feared that private digital tokens could end up threatening sovereign currencies such as the euro.

Paolo Ardoino, chief technology officer at Tether, said that the world’s largest stable coin issuer welcomed clarity in the regulations.

“MiCA is one of the more progressive initiatives to date and is focused on driving crypto-innovation and adoption in the European region,” said Ardoino.

In addition, Dante Disparte, Head of Strategy at Circle, said that the EU framework represented a “significant milestone”.

MiCA “will be encrypting what the GDPR was for privacy,” he said, referring to the groundbreaking EU data protection rules that set the standard for similar laws elsewhere in the world, including California and Brazil.

Overall, MiCA is the first attempt to create comprehensive regulation for digital assets in the EU. While some of the stricter guidelines have rattled some crypto firms, several industry insiders see this as a positive step and believe that Europe can take the lead in crypto regulation.

The rules are expected to enter into force as early as 2024, a landmark move that will put the bloc ahead of both the United States and the United Kingdom when it comes to rolling out laws tailored to the crypto market.

“Harmonization of the market is the key to truly generating larger crypto companies in Europe,” said Patrick Hansen, advisor at venture fund Presight Capital.

“Europe lacks large crypto companies right now, and fragmentation is one of the reasons.”

Coinbase is applying for licenses in several European countries, including France, said Katherine Minarik, the firm’s legal vice president. She told CNBC that the exchange will be able to “pass” its services to all 27 EU countries under MiCA.