Cryptocurrencies: MiCA regulation threatens stablecoins

The MiCA law comes into force on June 30th. Too vague, too restrictive, the law is controversial and worries cryptocurrency professionals. Ultimately, stablecoins like USDT or USDC could disappear completely in Europe.

Why is MiCA law important for stablecoins?

The “Cryptocurrency Markets Regulation” (MiCA) will soon be applied to the cryptocurrency market. The stated objective? Strengthen consumer confidence and stabilize the cryptocurrency market in Europe. “The main provisions applicable to issuers and traders of crypto-assets […] attention to transparency, dissemination of information, authorization and monitoring of operations” read more the website of the European Parliamentwhich initiated this law.

MiCA focuses specifically on stable cryptocurrencies. It mainly targets industry giants like Circle (USDC) and Tether (USDT). To continue offering their stablecoins in Europe, these operators will first have to obtain a specific license, similar to that required of “banking institutions”.

The consequence: Binance, Coinbase, and other major platforms will have to adapt. They need to ensure their cryptocurrency offerings are compliant with this new regulation. This is why Binance has been warning its users about stablecoin disruptions. In a recent email to its customers, the exchange sought to reassure: “Binance will not be delisting these stablecoins. […] We will implement some restrictions for EEA users but only on certain products and will offer alternatives with regulated stablecoins or other crypto assets.”

Why is the EU targeting stablecoins?

Why is the European Union specifically targeting stablecoins? It is an obvious response to the fiasco of Terra Luna and its stablecoin, UST. From Brussels’ point of view, the risks inherent in stablecoins are too significant. In the institution’s sights: opaque capital reserves, lack of collateral, and questionable solidity of such cryptocurrencies. The FTX Case did not help to alleviate this mistrust.

Brussels is unofficially pursuing other goals as well. Stablecoins allow users to avoid the infamous cryptocurrency tax, while benefiting from a way to protect their cryptocurrency earnings. By staying in stablecoins, users avoid a taxable euro conversion, provided they want to stay in the cryptocurrency ecosystem without withdrawing to a traditional bank.

Furthermore, there are geopolitical stakes. Europe wants to maintain its sovereignty vis-à-vis the United States. Stablecoins are largely backed by American companies, which are massive capital sinks. Finally, stable cryptocurrencies could overshadow the digital euro project.

Regulating at all costs: a counterproductive European strategy?

Some cryptocurrency operators accuse the European Union of hindering innovation. Worse still, by forcing Binance to withdraw its USDT offering, investors could be forced to turn to unregulated and therefore riskier platforms. DeFI is known to carry more risks. Excessive regulation could also lead to an exodus of companies established in Europe. The Middle East, Asia… there is no shortage of exile destinations. This argument was echoed by former MP Pierre Person, who declared as early as 2022 that “the European Union is shooting itself in the foot.”
Recently, Tether had expressed his doubts about the MiCA law, hinting at the possibility of leaving Europe permanently. Meanwhile, the company Circle, which issues USDC, has committed to complying with all regulatory criteria.

A legal mess that is difficult to enforce

The problem is that this new European regulation on stablecoins has left ecosystem players little time to prepare. Just a year for a massive legal undertaking. The other problem is that the texts regarding stable cryptocurrencies lack clarity. “There is uncertainty about how the MiCA is drafted,” according to Faustine Fleuret, who heads ADAN, the Association for the Development of Digital Activities. “We can expect some leniency on July 1.”

In a context where Bitcoin price is falling againThe uncertainty over USDT or USDC is not good news for investors. Especially since the market alone is now worth $1.27 trillion.

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Martin

Fascinated by the history of Bitcoin and the cypherpunk movement, I think citizens need to reinvest in the field of money. Mon but? Democratize and make visible the potential of blockchain and cryptocurrencies.

DISCLAIMER

The views, thoughts and opinions expressed in this article are solely those of the author and should not be construed as investment advice. Do your own research before making any investment decisions.

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