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

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

The MiCA regulation is a significant development for the crypto industry in the EU. Before MiCA, crypto companies had to deal with 27 different regulations across EU member states, where Germany or France, for example, were costly and burdensome.

Under MiCA, however, EU-wide regulations will apply, allowing companies to operate throughout the EU’s crypto market with a MiCA license granted in one country. This will increase the competitiveness of EU startups and may lead to them taking market share from unregulated competitors.

MiCA will increase the EU’s competitiveness

Moreover, MiCA could encourage more institutional adoption and activity in the EU crypto and blockchain market. Patrick Hansen, director of EU strategy and policy at stablecoin issuer Circle, told Cointelegraph that MiCA will enable European crypto firms to scale and grow faster, allowing licensed companies to offer their services throughout the world’s largest single market, with approximately 450 million human beings:

“The legal clarity will also promote innovation among financial institutions that have previously been hesitant to launch products and services due to regulatory uncertainty. In addition, as MiCA is the first comprehensive regulatory framework for cryptoassets from a major jurisdiction in the world, it is likely to attract significant foreign capital and talent to the region.”

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

Magazine: This is how Ethereum’s ZK rollups can become interoperable

Creating a regulatory framework for a technology that sees new developments and growth practically every month and evolves as dynamically as the tokenization of investment opportunities is “very challenging.”

“It should therefore come as no surprise that some regulations are not yet optimal and that questions about concrete applications remain unanswered,” Schildt said, adding that with MiCA, Europe has the opportunity to position itself “as a place of innovation and quality.” “

Unregulated companies out of EU crypto market

Peter Grosskopf, co-founder of decentralized finance (DeFi) project Unstoppable Finance, is also convinced that MiCA will benefit the EU’s crypto and blockchain market. First, companies from outside Europe will have to register with a company in the EU, so there is a “direct impact on job creation and tax payments.”

Second, many jurisdictions have an overly strict approach to regulating crypto. For example, “The United States regulates by enforcement.” Compared to other regions, the EU will become “a safe space for industry as a whole, and innovators from all over the world will start building their businesses here,” Grosskopf said.

Stefan Berger also noted that the US is currently cracking down on the crypto sector. According to the German politician and EU Parliament rapporteur for MiCA, the European crypto-asset industry has regulatory clarity that the US does not, and US lawmakers would be wise to take a cue from MiCA:

“For me, the biggest advantage is that we create trust, which is a crucial booster, especially for young technologies like blockchain. I expect that regulation will become a global standard setter over time. A global MiCA would be desirable at some point.”

NFT regulation inevitable

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

In addition, MiCA will ensure that each new token is reviewed for approval to check that the business model does not threaten the stability of the cryptocurrency, creating more transparency for investors.

But the crypto and blockchain sector is constantly evolving. “Tokenization is not hype and will become an integral part of our lives and the financial world,” Berger said. More and more business models are emerging based on, for example, non-fungible tokens (NFT), which have largely been exempt from MiCA. (The new regulation will only address cryptoactive service providers offering services for NFTs).

But according to Berger, NFTs are next on the agenda, with European lawmakers looking at what type of regulation would benefit the industry and consumers.

Schildt also expects further regulations on NFTs relatively soon. “We should rethink the traditional classification of investment products.” According to the expert, investments “that were previously considered ‘art collections’ will in the future also qualify as capital investments.”

DeFi is a hot topic in European policy-making

Some aspects of MiCA have not yet been defined through upcoming technical standards and guidelines.

For example, what are the specific liquidity requirements for electronic 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 referred to as Level 2 legislation,” Circle’s Hansen said.

Hansen further noted that beyond MiCA, EU institutions are finalizing a new anti-money laundering (AML) rulebook that will be “critical for crypto firms.”

Another critical review is PSD2, the EU’s main payments directive, which will also significantly affect crypto firms.

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

Unstoppable Finance’s 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 intermediary.”

Recent: Foreign Trade and Pensions: What’s Next for Russia’s CBDC Project?

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

While it remains unclear exactly how European lawmakers will regulate NFTs and DeFi or whether there will be new requirements regarding smart contracts, the success of the first step towards regulation – MiCA – could provide a significant boost to both EU crypto businesses and the EU economy. an entire. However, whether this success is realized will depend on the practical implementation standards that are developed in the future.