Regulation
The European MiCA is finally here. How will the US respond?
The first wave of the European Union’s comprehensive and fundamental law regulating digital assets will come into force on Sunday. With the Markets in Crypto-Asset Regulation framework, Europe has managed to do what other jurisdictions, including the United States, are still failing to do: provide legal and regulatory clarity not for a part of the digital asset market, but for the entire market.
Catalyzed by the specter of Big Tech, such as Meta’s Diem (formerly Libra) initiative, entering financial markets, or due to fears of uncontrolled cryptocurrency, the last five years have been marked by concerted political development in Europe. MiCA will have a profound effect in permanently connecting digital assets and the real economy and will do so in a uniquely European way.
Dante Disparte is the chief strategy officer and head of global policy at Circle.
The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
In the first decade of cryptocurrency, much of the industry has been characterized by a recurring and attractive boom-bust cycle that has in many ways made this market uniquely American. As a result, the U.S. dollar is not only the price benchmark for digital assets (thanks to the steady rise of stablecoins, which now exceed $150 billion)., but also the reserve currency of Internet finance, to the extent that it plays this role in the real world. MiCA aims to address this problem by giving euro-denominated stablecoins, which will be classified as electronic money tokens under new EU rules, a chance at success and a consumer market of 441 million people.
While some aspects of MiCA are protectionist in nature, anchored on protecting European consumers and investors from the frauds and risks that have plagued the rapidly evolving cryptocurrency markets, there is also a degree of economic and technological sovereignty at play. This is most evident in the diplomatically named offshore stablecoins global stablecoins – are inadmissible under the MiCA. Stablecoins pegged to other currencies must primarily comply with the licensing requirements for electronic money in Europe, which would involve complying with prudential, financial crime compliance and other rules. If the stablecoin issuer offers other cryptocurrency services, it must obtain a second license, as a digital asset service provider (DASP), virtual asset service provider (VASP), or cryptocurrency service provider (CASP), depending of the jurisdiction. This requirement is a basic level of compliance for digital asset custody. In addition to these licensing requirements, gone are the days of amorphous cryptocurrency companies without a substantial presence in the EU.
Indeed, MiCA is as much about employment development and economic competitiveness as it is about consumer and market protection. Licensed entities must have responsible “mind and management” in an EU jurisdiction through which they can then move their operations across the federation thanks to pan-European regulatory harmonisation, although there is still some way to go for regulators at national level to ensure that MiCA enters into force smoothly in the common market.
For the cryptocurrency industry and its existential coupling with the banking sector, MiCA marks a profound change, for which only the most serious players are ready. For example, in the resurgent stablecoin category, where the dollar is the reference currency, MiCA marks a proverbial fiscal cliff where unregulated or non-compliant tokens will eventually be delisted or have their access severely restricted by cryptocurrency exchanges . The reason is simple. Instead of treating stablecoins as a fringe financial product or simply a poker chip in a cryptocurrency casino, MiCA aligns stablecoins with long-standing electronic money rules. Therefore, all stablecoins offered by EU cryptocurrency exchanges must comply with the rules for electronic money tokens. This gives the token holder an at-par redemption right for the underlying currency directly from the issuer, a way to strengthen collective responsibility and consumer protection across the value chain of interconnected digital assets, from wallet, to exchange and, ultimately, to the issuer. Contrast this model with the amorphous standards or lack of prudential safeguards that protect against the rush to stablecoin in name only Terra Luna. If Terra Luna had complied with the equivalent of e-money in the United States, which are state money transmission laws, consumers might have been better protected from the collapse.
In the prevailing EU model, all regulated stablecoins will now have a common regulatory base, which will not only encourage competition but ultimately lead to broader fungibility and interoperability in the EU market. Like all new global rules or regulations, MiCA is imperfect and in some places overly prescriptive, so much so that EU policymakers are already contemplating MiCA 2.0, which could potentially fill some gaps in the regime such as non-fungible tokens (NFTs), decentralized finance tokens and other areas. While MiCA has now given European cryptocurrency market participants clear rules, on the American side of the Atlantic, imperfect rules or a lack of federal regulation have allowed an industry to thrive. Should the transatlantic tech divide widen – or should the US and critical EU partners aspire to a shared digital commons?
If US policymakers take a competitive stance on digital assets with the EU, a full-blown “NAFTA for Digital Assets” could be contemplated across North America. A lasting alternative, however, would be to form a transcontinental Western Digital Asset Alliance that would enshrine shared democratic values in these emerging markets and how exponential technologies shape the future.
Now that the world has MiCA, it is time for the United States to act and reaffirm its position as a global leader in financial services regulation and innovation.