Long dreaded regulations have begun to descend on the world of cryptocurrencies. The most recent rules will affect roughly a fifth of all crypto trading as it involves the European Union where about $1.7 billion in cryptocurrency transactions took place in 2022. In the US there has been a fair amount of bickering over how crypto regulation should proceed. What tipped the scales toward more regulation in the US and well as in the EU was the crypto bloodbath of business failures, bankruptcies, fraud allegations, and investors who lost large sums of money. President Biden issued an executive order regarding the future of US money and payment systems in early 2022 and US regulators are already applying current laws to issues like Binance trading violations. We believe that the comprehensive regulations passed by the European Parliament may well set the standard for many nations going forward. What concerns us today is will new EU rules help or hurt crypto?
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European Union Crypto Rules
Before deciding if new crypto regulations in the EU will hurt or help, let’s take a look at the moving parts of the new set of laws referred to as MiCA which stands for Markets in Cryptoassets (MiCA) Regulation. The first part of the new set of laws requires crypto licensing of all cryptocurrency enterprises within the EU. Anyone dealing in cryptocurrencies will need to be registered with a regulatory authority in at least one EU state before engaging in operations throughout the EU. This will put all crypto businesses directly under the authority of the two EU financial watchdogs, the European Banking Authority and the European Securities and Markets Authority. An anti-money laundering law passed separately from the MiCA legislation requires that all crypto business identify who their customers are. Anyone sending or receiving crypto currencies as a business will need to report the identities of all customers to the appropriate local anti-money laundering authority!
Stablecoin Stability Will Be Regulated in the EU
Stablecoins that are backed by hard currencies like the US dollar or euro are generally more secure than ones protected by an algorithm than seeks to manipulate trading of a token to adjust value. Now in the EU, stablecoins that use a hard currency to support their value will have to demonstrate sufficient reserves of that hard currency to regulators similar to how banks and insurance companies are required to maintain and demonstrate sufficient reserves. In addition, regulators will demand evidence of sound management and governance from these entities. In addition, anyone not pegged one-to-one to the euro will have a €200 million daily trading cap.
EU Regulations Will Take Force Over Two Years
Fortunately, the bulk of the new EU laws do not go into force tomorrow. The law will take its final form in June and the first rules will start in July. The rules regarding stablecoins will be a year after, July 2024 and the rules for DeFi companies will start at the beginning of 2025.
Public Concerns and EU Crypto Laws
From what we can see, each aspect of the new EU MiCA regulations answer a public concern that is currently covered in the US by a regulatory agency as each of them extends their reach into the crypto world. The crypto world is generally OK with anonymity but typically not with things like money laundering interfering with otherwise legal and normal business operations.
Those who have made money in crypto over the years are generally OK with a fair amount of volatility but usually not very happy to hear that folks like Bankman-Fried were engaging in fraud as he used their money for his own purposes! Folks who thought their money was safe with a stablecoin were not especially happy when an algorithm turned out to be useless and all of their savings disappeared in a couple of days.
To a degree the growing crypto world resembled the US in the late 19th century with people like Vanderbilt and Rockefeller who were called captains of industry by some and robber barons by others. Regulations reigned in the robber baron excesses and allowed American business to thrive. We expect the same in a regulated crypto world.
Will New EU Rules Help or Hurt Crypto? – SlideShare Version