The EU's cryptocurrency regulation, the Market for Cryptoassets (MiCA), heralds a new era for the industry, providing access to approximately 18% of the world's cryptocurrency trading volume.
As part of efforts to create a framework across all European Union (EU) member states, MiCA has made it mandatory for all stablecoin issuers to hold an electronic money institution (EMI) license from June 30th . imposed strict compliance requirements on exchanges;
Some exchanges have adjusted their offerings to include only stablecoins that meet EU cryptocurrency regulations. They hope to maintain access to a potential market of more than 200 million once MiCA is fully implemented by the end of the year.
MiCA is part of the EU's digital finance package designed to reduce cryptocurrency risks. This applies to crypto assets not covered by existing financial laws, especially stablecoins and crypto asset service providers.
This is “a huge milestone,” said Circle CEO Jeremy Allaire. This will “bring digital currencies to mainstream scale and acceptance,” he said.
Cryptocurrency market capitalization YTD, Source: TradingView
EU virtual currency regulation prompts action from virtual currency exchanges and stablecoin issuers
Reply to California-based exchange MiCA coinbase coin Unapproved stablecoins that are not MiCA compliant will be delisted.
Coinbase CEO Brian Armstrong told CoinDesk on October 11 that “we intend to restrict the provision of services by stablecoins that do not meet MiCA requirements.”
Binance, the world's largest cryptocurrency exchange, announced in early June that it would no longer delist unlicensed stablecoins on the spot. However, European users will only be able to use the service for “certain products.”
paypal PYPL launched its own regulated stablecoin, PayPal USD (PYUSD), on August 7, 2023 through Paxos. PayPal operates in Luxembourg under an EU banking license and is granted business access to the region under EU law.
USDC and EURC issuer Circle has secured an EMI license. This was done under the French banking regulator, the Prudential and Resolution Authority. USDC has outperformed USDT by more than 10% since the beginning of the year.
Cryptocurrency market capitalization YTD of USDC and USDT, Source: TradingView
EU virtual currency regulation emphasizes consumer protection
MiCA requires digital asset managers to obtain a license in an EEA member state in order to operate across the EU. Issuers of stablecoins with a fixed reference to fiat currency, called e-money tokens, are required to hold at least 30% of their funds as bank deposits.
For stablecoins to be considered “significant,” at least 60% of their fiat reserves must be spread across multiple institutions. This is based on criteria such as market capitalization, user base, and trading volume.
EU crypto regulations require stablecoin issuers to disclose detailed information about their reserve assets and comply with liquidity requirements. Capital standards must be maintained and consumer protection ensured.
For example, a stablecoin must be backed by a 1/1 ratio of liquidity reserves and some deposits.
EU Cryptocurrency Regulation Requires Risk Disclosure
Additionally, MiCA requires the publication of a white paper detailing the potential risks and implications of cryptoassets. It also requires detailed disclosure of accumulated assets.
MiCA imposes usage caps on foreign currency-denominated EMTs such as USDC and USDT, limiting the number of transactions within the EU to 1 million per day or the daily transaction value to EUR 200 million. Masu.
These measures could lead to broader adoption and integration into the traditional financial system.
However, EU crypto regulation introduces complexity and could stifle smaller market participants through increased operational costs and compliance burdens.
Tether has long criticized MiCA for its lack of transparency and reserve management. CEO Paolo Ardoino told crypto research portal The Block in early June that these “not only greatly complicate the operations of stablecoin issuers, but also make EU-sanctioned stablecoins extremely difficult to operate.” “It could be vulnerable and increase operational risk.”
Tether has not yet secured an EMI license. However, the company is “developing technology-based solutions to meet the needs of the European market.”
Fragmented US cryptocurrency industry compared to EU regulations
The regulatory approach to cryptocurrencies remains fragmented across the Atlantic, with different states and federal agencies imposing different rules. The United States has not yet introduced a comprehensive framework.
Discussions regarding stablecoin regulation and central bank digital currencies (CBDCs) are ongoing. This disparate regulatory environment creates uncertainty for cryptocurrency businesses operating across jurisdictions, such as Coinbase, Kraken, and Bitstamp.
The US regulatory approach in 2023 resulted in euro-based trading volumes increasing at a faster pace than the dollar.
Source: Kaiko Research, Current State of the European Cryptocurrency Market, 2023
Notably, in the US, 90% of transactions are completed using stablecoins, and only 1% are completed using stablecoins, so the euro leads the dollar in crypto trading.
Access to the European market
The opportunities for major crypto players are enormous. The European cryptocurrency exchange market size is expected to grow to $14.3 billion this year. By next year, the number of users will reach 218.6 million;
Coinbase's international operations, including Europe, contributed approximately 17% of total revenue in the first quarter of 2024. By working with MiCA, Coinbase will be able to take advantage of a regulatory approach within Europe and have the potential to increase its regional revenue share through derivatives in Europe.
Coinbase is able to benefit from the European regulatory environment due to its strong foundation with USDC, Circle’s MiCA-compliant stablecoin.
The world's largest technology companies have been waiting for regulatory clarity to integrate cryptocurrencies. As for MiCA, “they all want it to happen in the U.S.,” Armstrong said. “We are bullish on this.”
Disclaimer
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