Crypto will be tamed, but only if the world swears allegiance to Brussels
Endorsed by the EU Parliament in October, the much-discussed Markets in Crypto Assets (MiCA) Bill is at the forefront of the global push to regulate crypto.
With a focus on consumer protection, enhanced anti-money laundering guidelines and the first full classification of crypto-assets, MiCA comes amid this year’s carnage.
The crypto industry’s market cap was reduced from $2.8 billion in November 2021 to $900 million a year later and $2 billion worth of crypto was stolen this year on blockchain bridges alone.
A comprehensive framework like MiCA is certainly the right step, but the Europe-first my-way-or-the-highway approach will undo the bills.
MiCA’s eurocentrism, tentatively unveiled in June, is most evident in its definition of crypto-asset service provider (CASP), crypto-asset classifications and trading volume limits.
Under Article 33, CASPS – firms that offer crypto to retail or institutional clients – can only operate with a MiCA-approved license or if their custodian services are performed by a bank headquartered in the EU.
This will hit big firms like Coinbase, Archax, Circle or Kraken, all of which are headquartered in the US or UK and bankrolled by banks in those countries.
The second bit of Eurocentrism affects most major stablecoins. According to data from CoinGecko, there are more than 86 stablecoins, with Tether (USDT), Circle’s USDC Coin (USDC), and Binance’s (BUSD) accounting for 90% of the market.
Under MiCA’s electronic money or e-money definition, stablecoin issuers must use euro-denominated trading pairs.
Yet data from The Block indicates that only 0.4% of the pair’s denominations are exported in euros. Additionally, the CASP regulation will also affect major stablecoin issuers, as Tether is based in the Bahamas, Circle is based in the US, and Binance is based in Hong Kong and the US.
Currently, there is no indication that any of these leviathans will most likely make their way to mainland Europe, despite the introduction of euro-denominated stablecoin pairs.
Finally, trading volume regulation under MiCA is unrealistic at best. Article 19b limits the number of transactions that CASPs can process per day. Under MiCA, the transaction volume cannot exceed one million transactions and cannot exceed a value of €200m.
If a CASP or an e-money token issuer exceeds both limits, they are required to cease operations immediately. This will impact any non-EU-headquartered entity that transacts in crypto – from exchanges to traditional banks, the trading volume limit will act as a deterrent to firms.
The question is why such a protectionist approach? The restrictions on CASPS and e-money token issuers are intended to prevent risks like those posed by Facebook’s, now Meta, Libra stablecoin.
Launched in 2019, Libra aimed to develop a new global digital currency and the necessary infrastructure. Not only did Meta have 2.5 billion users worldwide, but it also had the technological capabilities and funds to directly challenge monetary authority.
As Henri Arslanian, the author of the Book of Crypto, said, Libra was a “bombshell”. Despite Meta and Libra no longer being a threat, the EU and MiCA have made it clear that any challenges to the euro from the crypto space would not be welcome.
Just as MiCA is pushing an EU narrative, Germany is now planning to tighten the EU directives for non-German banks. Proponents of the EU’s short capital market reform may mean that cross-border business with Germany can no longer be done in the same way.
At the moment, Germany allows banks from outside the EU to offer services across borders, but the new capital requirements directive VI wants to ban such operations. Only banks with a physical presence in Germany will be allowed to serve customers in the country.