Regulation
What are Cryptocurrency Markets (MiCA)?
What are Cryptocurrency Markets (MiCA)?
The Markets in Crypto-Assets (MiCA) regulation is a framework created by the European Commission (EC) that focuses on maintaining financial stability. It is also designed to protect investors and promote widespread transformation in the cryptocurrency industry in European Union (EU) countries.
Key points
- The regulation of cryptocurrency markets (MiCA) in a regulatory framework created by the European Union.
- MiCA entered the Official Journal of the European Union in June 2023, with consultation packages released at regular intervals for public feedback.
- MiCA came into force in June 2023, but the regulation will not be fully implemented until December 2024.
History of Cryptocurrency Markets (MiCA)
On 10 October 2022, the EC Economic and Monetary Affairs Committee voted by an overwhelming majority (28 to one) to approve the first regulation of blockchain-related assets, paving the way for a vote of the entire European Parliament by the end of 2022. The bloc’s national governments had previously approved MiCA.
The Regulation came into force (became law) in June 2023, although three consultation packages have been published for public feedback. By June 30, 2024, Title III and Title IV will become applicable (may be enforced), while five other titles (I, II, V, VI, VII) will come into force in December 2024. Titles VIII and IX cover delegated acts and transitional measures. and final provisions, which do not require public feedback or adjustment periods from Member States.
European Securities and Markets Authority
The law allows suppliers to digital wallets and other crypto services to be marketed and sold across the EU bloc if they register with national authorities. They must also meet minimum safeguards to safeguard investors and support financial stability.
Cryptocurrency Securities Markets
MiCA has seven titles covering cryptocurrency regulation, authorisation, minimum requirements for providers and jurisdictional responsibilities. The regulation defines three types of crypto-assets: tokens referring to assets, electronic money tokens and crypto-assets other than the previous two.
Titles VIII and IX deal with the adoption powers and the Commission’s responsibility to report to the European Parliament and the Council on the effects of the legislation and any developments. An interim report is expected by June 30, 2025 and a final report by June 30, 2027.
Crypto Asset Markets Title I
Title I, Article 1, defines the requirements of the offering and trading platform for crypto-assets offered to the public and for the entities involved in them. Article 2 defines who the regulation applies to, and Article 3 lists definitions of all terms used in the legislation, such as distributed ledger technology, utility token, consensus mechanism, crypto-asset service, and dozens of others .
Crypto Asset Markets Title II
Title II specifies who can create and offer a cryptoasset to the public. An entity that creates and plans to issue a crypto-asset that does not meet the definition of a token with respect to an electronic money asset or token must meet specific criteria. An entity must:
- Meets the definition of a legal person
- I wrote and published a whitepaper on cryptocurrencies
- Have written and published marketing communications
- Inform the competent authorities in your Member State and send the whitepaper (required) and marketing communications (if requested)
- Respect the requirements of other bidders
These criteria do not apply to tokens rewarded for work performed on a blockchain if the cryptoasset is offered for free. If it is a token intended to be used as a payment method or if it is a utility token, it is not considered a crypto-asset.
Central to this title are articles that outline what must be included in white papers and marketing communications for an entity to attempt to list a crypto-asset on a trading platform.
Crypto Asset Markets Title III
Title III defines asset tokens which, according to the EU definition, are tokens that seek to stabilize their value by using the value of another asset or right. This covers all crypto-assets whose value is tied to or backed by other assets, such as officially backed currencies like the euro or dollar – many people know this as a stablecoin.
Asset-related tokens must be issued by an entity that meets the definition of a legal entity and be a credit institution, which must follow specific requirements for its issuance.
Crypto Asset Markets Title IV
Title IV defines who can issue electronic money tokens. E-money tokens are “e-money,” referring to crypto-assets that represent official currencies. Issuers must be authorized credit or electronic money institutions. This title also covers how electronic money can be issued and redeemed and how to write a white paper. It also defines the responsibilities that money issuers assume when offering an electronic money token to the public.
Crypto Asset Markets Title V
Title V defines who is authorized to provide crypto-asset services and where they can provide them based on their location within the Union. The law allows the following entities to offer services:
If a service provider does not meet the definition of a legal entity, it can offer services if it operates under a legal form that provides the same level of protection as those that do. Businesses must also comply with several provisions and ensure that they are authorized and licensed in their Member State.
In the EU and many developed countries, a legal entity is a company, individual or organization that the law treats as a person. An entity engaged in activities that a human can engage in (paying taxes, owning property, entering into contracts, and so on) is a legal entity in the eyes of the law.
This title also allows service providers to provide cross-border services if they have informed the competent authorities in their Member State. It also defines obligations to customers and outlines operational, security and governance requirements.
Crypto Asset Markets Title VI
Title VI is one of the shortest titles in the legislation. It addresses concerns about market abuse and the extent of abuse covered by the title. Other standard investment rules are also outlined, such as public disclosure of inside information, insider trading, and market manipulation.
Crypto Asset Markets Title VII
This title provides instructions to authorities and defines a framework for cooperation between jurisdictions. Member States are required to appoint competent authorities and ensure that they report to the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).
In addition to the powers that member states grant to their regulators, in this section the EU has created minimum powers that all authorities within the Union should have.
MiCA exclusions
One of the most interesting aspects of MiCA is that several blockchain-related assets are not considered crypto-assets, at least as far as they fall within the definitions established in this legislation. For example, explicitly mention as excluded:
- Cryptographic assets that fall within the scope of financial instruments
- Those that qualify as deposits or structured deposits
- Assets that qualify as funds
- Those that qualify as positions towards securitization
- Crypto-assets that qualify as casualty or life insurance policies
- Pension products and social security schemes
- Non-fractional non-fungible tokens
- Transactions between certain public bodies and groups
- Central Bank digital assets
- Non-transferable digital assets
- Financial instruments falling under other directives
What is the regulation of cryptocurrency markets?
The Crypto Asset Markets Regulation is a European Union framework that defines crypto assets, how they are regulated, who can regulate them and the requirements for anyone providing crypto products and services.
What is the cryptocurrency market?
A crypto-asset is any blockchain-based digital asset that meets European Union (EU) definitions. This market does not include non-fungible tokens, deposits and other financial items that meet specific criteria.
What are the different types of crypto-assets?
According to the EU definition, crypto-assets are tokens referring to assets, electronic money tokens and crypto-assets other than the previous two.
The bottom line
MiCA is a milestone in the cryptocurrency market as it is the first comprehensive regulation for the still emerging technology. The framework defines the resources that fall under its jurisdiction, who can offer related products and services, and who has the authority to regulate and enforce legislation. MiCA will be fully applicable by the end of December 2024.
The comments, opinions and analyzes expressed on Investopedia are for online information purposes. Read ours warranty and exclusion of liability for more information.