From June 30, 2024, strict regulations on stablecoins under the European Union's (EU) Markets for Cryptocurrency Regulation (MiCA) framework officially take effect. Non-compliant stablecoin issuers may be forced to withdraw from the EU market, allowing Euro-backed stablecoins to flourish as demand for the asset increases.
The cryptocurrency market in the European Union (EU) is facing an important transition when the first set of regulations under the Markets for Digital Assets Regulations (MiCA) framework officially takes effect. The regulation, which marks the first set of unified market rules for cryptoassets in the EU, will be applied over a roadmap, starting with stablecoins on June 30, 2024 and extending to other providers. offering crypto asset services later this year.
Impact on issuers and exchanges
The MiCA regulation is expected to have a far-reaching impact on stablecoin issuers and cryptocurrency exchanges operating within the EU. Non-compliant issuers may have to withdraw from this market, leading to a significant shift towards Euro-backed stablecoins due to increased demand.
Some major exchanges such as Uphold, Binance, Kraken and OKX have proactively delisted some stablecoins such as Tether. Bitstamp also announced plans to delist Euro Tether (EURT). These moves are intended to meet MiCA regulations, ensuring compliance before the law's effective date.
Jón Egilsson, former chairman of the Icelandic Central Bank's supervisory board, said non-compliant stablecoin issuers may have to withdraw from the EU market, paving the way for compliant alternatives. Sharing the same opinion, Ms. Laura Chaput, head of regulatory compliance at Keyrock, said that the stablecoin market can grow despite limitations, because retail investor confidence will be strengthened thanks to these measures. Stronger protection.
Prepare for MiCA compliance
The adoption of MiCA is an important step towards regulatory clarity in the cryptocurrency industry. However, Mr. Egilsson also noted that MiCA, in addition to bringing regulatory clarity, also created certain disruptions to the market. For example, cryptocurrency tokens (EMTs) are now subject to regulation, affecting crypto-asset service providers (CASPs) such as exchanges and e-wallets. These providers will have to delist non-MiCA-compliant stablecoins by June 30.
The European Banking Authority (EBA) has published several reports on Regulatory Technical Standards (RTS) relating to EMTs under MiCA. These reports outline the standards effective June 30 and should be incorporated accordingly by stakeholders. In the short term, regulators will need to clarify a number of issues related to the newly issued regulations.
From the perspective of market participants, adapting to new requirements will take time. Mr. Egilsson emphasized the importance of ensuring proper authorization, meeting strict organizational, administrative and capital requirements. Stablecoin issuers that are already licensed to operate as cryptocurrency institutions will need to review some of their operations and safeguards, but will not face fundamental changes.
Psychological and market influence
Mr. Reinis Znotiņš, executive director of the Latvian Blockchain Association, said that the adoption of MiCA marks the end of speculation about the legality of cryptocurrency business in the EU. Doubts from stakeholders about the future of cryptocurrencies in a highly regulated environment were once widespread. However, with the entry into force of MiCA, there is now a clear legal framework for companies operating in this field, contributing to enhancing the legality of cryptocurrency business within the EU.
This legitimacy is expected to dispel misgivings from various stakeholders. Mr. Znotiņš believes that one of the first observable effects after MiCA comes into force is on market sentiment. The EU Parliament's recognition of cryptocurrency businesses as legal within a specific legal framework will significantly strengthen the confidence of stakeholders.
Prepare for conversion
MiCA's entry into force marked an important milestone in the process of completing the legal framework for the cryptocurrency industry in the EU. For companies and users, it is important to stay informed about new regulations and adapt to the changing environment. While the phased implementation of MiCA, starting with stablecoins and expanding to CASPs will create a clear roadmap for compliance.
According to Ms. Chaput, some businesses may try to "circumvent the law" by moving operations or taking advantage of reverse solicitation principles. However, the new regulatory framework could also open up opportunities for traditional financial institutions to enter the stablecoin market. This could lead to greater competition and innovation in the cryptocurrency industry, benefiting both businesses and users.
Besides, cryptocurrency users in the EU need to prepare for a changing ecosystem. They may have access to fewer asset classes, but in return there will be greater transparency about how the tokens work. Ms. Laura Chaput highlighted the benefits of enhanced consumer protection, such as guaranteed redemption rights for EMT holders. Tighter regulatory oversight aims to establish a safer environment for investors.
However, it is also possible that some users may turn to trading on exchanges outside the EU to gain access to a wider range of tokens. This may expose them to higher risks due to a less transparent regulatory environment and fewer safeguards.
Mr. Egilsson hopes that in the long term, users will benefit from increased protections and more transparent information about the crypto assets they trade. At the same time, note that in order for the transition process to take place smoothly, businesses need to pay special attention to ensuring proper authorization and meeting strict organizational, administrative and capital requirements according to regulations.
While there may be some initial inconvenience, the end result is expected to be a more secure and trustworthy environment for cryptocurrency users within the EU and European Economic Area (EEA). .