How will EU's MiCA regulation affect Bitcoin and cryptos?
Companies offering cryptoasset-related services happily welcomed the news that the three institutional bodies of the European Union (EU), the European Parliament, Commission and Council reached an agreement on the text of the proposed cryptocurrency market regulation. The landmark cryptoasset markets legislation (MiCA) will introduce licensing of cryptocurrency companies and safeguards for their customers and the industry has been favorable to the measure which, however, contains controversial points for users such as the taxation of self-hosted wallets.
"It is essential that there is a strong regulatory framework that establishes the parameters in which cryptoasset service providers develop our activity and we can reach the maximum potential" highlighted Enrique Palacios, COO of Onyze. He also stressed that when this legislation finally comes into force, investors will be fully protected by the regulations.
Crypto asset service providers (CASPs) will be subject to greater scrutiny to help prevent money laundering and other illicit activities that may involve digital assets. As explained by Ernest Urtasun, MEP for the Spanish Green party, "The new rules will allow law enforcement to be able to link certain transfers to criminal activities and identify the real person behind those transactions."
Experts also highlight that one of the most important developments is that of unhosted wallets, i.e., private, offline wallets that are not managed by an authorized platform. The EU Parliament has always been in favor of forcing cryptoasset service providers to identify their "unhosted" counterparty when transacting.
The regulation states that, "In case a customer sends or receives more than €1,000 to or from its own unhosted wallet, the CASP will have to verify whether the unhosted wallet is indeed owned or controlled by this customer." "Many cryptocurrency users, who value their privacy, will not like this measure," stated Marcus Sotiriou, an analyst at GlobalBlock. However, for most transfers to/from wallets, there will be no mandatory verification as the initial demand called ("non-hosted wallet verification") by the EU Parliament, scrutinizing transfers below €1,000 has ended up being diluted in the final text, the expert pointed out.
However, and unfortunately for stablecoin issuers, MiCA has introduced an option for EU authorities to stop the issuance of 'stablecoins' if they are used on a large scale for payments.
"On a positive note, lengthy negotiations have resulted in decentralized finance (DeFi) being outside the scope of MiCA. However, the commission will publish a separate report in 2023 for a new form of 'integrated DeFi supervision'," Sotiriou explained.
"The previously discussed Bitcoin ban (involving the Proof-of-Work mechanism) has also been dropped. Instead, CASPs will have to disclose information on the sustainability of the cryptoassets they service," the GlobalBlock expert added.
KEY REGULATIONS FOR THE MARKET
Experts also emphasize the scope of the rule. "Given that the EU is the first major jurisdiction to implement a comprehensive regulatory framework for cryptocurrencies, these rules will set global standards and affect regulations worldwide (including the United States)."
All in all, Palacios pointed out that "it is a regulation that will still have to be more detailed and developed to avoid possible violations of the right to privacy and proportionality that Europe has always been known for, and in this sense we market players still have a lot to contribute."
"Apart from the added clarity that many companies and financial institutions have been waiting for, I think the most satisfying aspect is that the ban on proof of work (introduced because of its environmental impact) has been removed. This shows that policy makers have listened to those fighting against the proposed rules, and recognition of a concerted effort towards a sustainable future for Proof-of-Work mining," Sotiriou noted.