EU crypto sector faces disruption from next week's MiCA rules targeting stablecoin activity: analyst

by Brian McGleenon

International Policymaking • June 26, 2024, 8:58AM EDT

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Quick Take

The impact of the MiCA framework on the EU’s stablecoin activity could adversely affect the bloc’s cryptocurrency sector, an analyst said.
The regulatory framework becomes partially applicable for crypto asset service providers and their KYC/AML requirements at the end of this month.

The upcoming Markets in Crypto Assets framework will enforce stringent regulatory requirements for stablecoin activity in the European Union that could adversely impact the bloc's cryptocurrency sector, an analyst said. From next Monday onwards, stablecoin activity in the EU must comply with the new requirements following the partial implementation of MiCA across the entire bloc.

Outlier Ventures Head of Research Jasper De Maere said that, because the majority of all stablecoins are USD pegged, it is unlikely that many of them will be able to comply with MiCA in the short term. "The consequences of this after MiCA is implemented is that European citizens might face limited trading access, poor liquidity and no access to more exotic crypto-native investment opportunities," De Maere told The Block.

As a result of the new regulatory requirements, he added that businesses may pull back their activities in the EU, hurting innovation in the bloc's cryptocurrency sector and consumer access. "Expect statements from large exchanges and stablecoin issuers over the next few weeks and months as MiCA gets fully implemented," he said.

De Maere stressed that the new regulations specify that only stablecoins meeting specific requirements can trade freely in Europe. He added that some of these requirements include obtaining an "electronic money license" and being under the supervision of the European Banking Authority.

"Additionally, there are rules such as the maximum trading volume being capped at 200 million euros, which is low compared to the 30-day average trading volume of USDT, approximately $30 billion," De Maere said.

Confused compliance efforts amid unclear regulatory guidance

De Maere painted a picture of confusion and uncertainty amongst EU-based cryptocurrency sector participants ahead of the implementation of the new regulations. "There is no real consensus among exchanges, legal councils and industry players about what needs to happen to ensure compliance," De Maere said.

He added that leading industry players are issuing warnings about the lack of clarity, noting that the European Banking Authority only published its guidelines on technical standards last week. "As a result, it is no surprise that no one has managed to find an elegant solution to implement the regulation," he said.

According to Chainalysis Head of Policy in Europe Matthias Bauer-Langgartner, stablecoins are the biggest use case for crypto-assets today, so MiCA’s stablecoin regime is a pivotal moment for the regulation of crypto-assets in Europe.

"The slightly nebulous scope of the stablecoin regime’s, particularly with regards to current virtual-asset service providers (VASPs), and the dual classification of EMTs as both funds and crypto-assets are likely to create significant uncertainties from June 30th onwards," Bauer-Langgartner told The Block.

The EU's MiCA regulatory framework becomes partially applicable for crypto asset service providers and their KYC/AML requirements at the end of June, and full compliance with the bloc's new regulatory framework will be required by December 2024.

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About Author

Brian McGleenon is a UK-based markets reporter for The Block. He has worked as a financial journalist and producer for multiple news outlets over the years, such as Fuji Television, The Independent, Yahoo Finance, The Evening Standard, and The Daily Express. Brian is also a screenwriter and producer with one feature film produced and one in development with Northern Ireland Screen. Apart from web3 and cryptocurrency developments, he is also interested in geopolitics, environmental issues, artificial intelligence, and longevity research. Get in touch via email [email protected].