The logic behind cryptocurrencies is that they are created and distributed outside the control of national governments. However, that doesn’t mean the sector wouldn’t benefit from some regulation. The European Union’s upcoming Markets in Crypto Assets (MiCA) Regulation, set to come into force in December, will establish a comprehensive legal framework for the issuance, investment, and trading of crypto assets across the EU.
A study by Javelin Strategy & Research, European MiCA Regulation: the sector referenceexamines the potential impact of MiCA on cryptocurrency in the EU and globally. MiCA represents a significant step forward in creating a uniform regulatory environment across the EU and could set a global standard for cryptocurrency regulation.
“What MiCA has done is come up with some relatively logical rules for managing digital assets and cryptocurrencies,” said James Wester, director of cryptocurrencies at Javelin Strategy & Research and a co-author of the report. “It’s the kind of thing that a company trying to build in this space can look at and say, ‘OK, here’s a goal I can achieve. I know what I’m supposed to do.’”
Establish clear standards
The impact of MiCA will not only be felt in Europe, but around the world. In the United States, the debate around cryptocurrencies has become highly political, largely due to the uncertainty surrounding their regulation. It remains unclear whether new enforcement measures or entirely new regulation are needed.
In contrast, Europe has set a clear path to compliance.
“This is a positive development,” Wester said. “It’s not a 100 percent guarantee. No regulation will ever meet 100 percent of what industry players want. But given that clarity was the main issue in the U.S., this is a step forward.”
Paradoxically, regulations like MiCA have made Europe a safe haven for crypto businesses. In recent years, the EU has seen a significant influx of crypto companies setting up their headquarters or operating there.
The EU has notably adopted a regulatory approach to technology in general, and several countries had adopted a pro-crypto stance even before the MiCA regulation was formulated. This regulatory certainty allows companies to build confidence in their operations, knowing that they have a clear framework within which to operate.
In addition to the rules already established, MiCA will introduce a roadmap for the development of regulations that foster an enabling environment for the development of cryptocurrencies. It will also establish a global benchmark, providing a framework for regulators around the world to evaluate and adapt, learning from what works and what doesn’t.
An EU approach
The EU has generally taken a regulation-driven approach to fintech. Regulators set clear guidelines: “Here’s what we want you to do and here’s what you can’t do,” leaving companies to operate within those boundaries. In contrast, the US has taken a market-driven approach, assuming that the market will drive innovation and that regulation will catch up with technological advances.
As Wester points out, regulators often don’t fully understand what the technology can or can’t do until it has progressed. By taking a regulation-driven approach, MiCA and the EU are encouraging development in the cryptocurrency space. The regulatory vacuum in the US has made it difficult for companies to get started.
Ultimately, the advantage of MiCA lies not in any single rule, but in the fact that these rules exist in the first place,
“I don’t see anything in there that would make me say that it’s going to make anybody better off,” Wester said. “Just because they said we’re going to make rules and they have to be followed.”
Cryptocurrency Now Has a Choice
The formalization of these rules also gives developing crypto companies an opportunity to think about what MiCA is proposing and saying: “Do we want to develop in Europe, or is this environment too strict? Maybe we want to try our luck elsewhere. Maybe in the United States, where the rules are a little less clear.”
Wester believes that instead of allowing the United States to remain a Wild West for crypto, the political establishment could begin to recognize the need for some regulatory safeguards.
“This is an opportunity for American regulators and lawmakers to say, ‘OK, we’re behind where we should be doing,’” Wester said. “If something isn’t done relatively quickly, we’re going to start seeing a brain drain to places like Europe, where companies know they can at least make products.”
