Author: Brian McGleenon, The Block; Translated by: Bai Shui, Golden Finance
The EU's Markets in Crypto-Assets (MiCA) regulation came into full effect on Monday, marking a significant shift in the region's approach to cryptocurrency regulation. However, the world's largest stablecoin, Tether, has yet to gain MiCA compliance certification. European regulators have remained silent on whether stablecoins meet the new regulatory standards, creating uncertainty around USDT's future in the EU single market.
According to CoinGecko, USDT's global market capitalization has decreased over the past 10 days, dropping from over $141 billion on December 19 to over $138 billion at the time of writing.
The potential impact of MiCA on Tether
MiCA imposes strict regulatory requirements on stablecoin issuers within the EU, including reserve and liquidity requirements. WeFi's growth director Agne Linge pointed out that meeting these requirements may pose economic challenges for large stablecoin issuers like Tether.
Linge noted: 'The new EU laws now require small stablecoin issuers to deposit 30% of their reserves in low-risk commercial banks located within the EU, while larger participants like Tether must deposit 60% or more of their reserves in banks.' 'Given Tether's massive capital and global adoption, meeting this requirement economically is not feasible without disrupting the broader crypto ecosystem.'
However, Linge believes that Tether's massive market capitalization and global adoption make it unlikely to face direct financial consequences due to a potential exit from the EU.
Linge stated: 'Tether's operations are largely unaffected by potential regional disruptions.' 'The company's profit margins are also high, with expectations to achieve a profit of $10 billion by the end of the year.'
Linge added that Tether is continuously diversifying its products and investments due to its substantial cash reserves, which reduces the risks associated with stablecoin issuance.
Linge emphasized that Tether utilizes its substantial cash reserves to diversify its products and investments, thereby reducing the risks associated with stablecoin products. The WeFi growth director further noted that most EU countries provide a transition period of 6 to 18 months for compliance or exit, which may help mitigate the impact of sudden withdrawals.
Due to ongoing regulatory uncertainty, some European exchanges have taken precautionary measures. Coinbase Europe listed USDT and five other stablecoins earlier this month, citing potential regulatory risks. This move is to comply with MiCA requirements and highlights the increasing pressure exchanges face in adhering to the new regulatory framework.
In contrast, major exchanges like Binance and Crypto.com continue to support USDT in Europe and are waiting for further clarification from regulators. Both companies have stated that they intend to closely monitor the implementation of MiCA before making any significant changes to their stablecoin products.
The long-term impact of MiCA on the EU cryptocurrency landscape
The full implementation of MiCA will change the cryptocurrency landscape in the EU, having far-reaching effects on companies of all sizes. Paybis Chief Revenue Officer Uldis Teraudkalns highlighted the impact of MiCA on the cryptocurrency market within the EU and noted that due to the massive compliance costs and investment requirements, it could drive both smaller and larger companies out of the EU.
Teraudkalns stated: 'The new regulations will certainly drive the development of smaller and even some larger companies outside the EU, as they not only require compliance but also demand significant investment from companies to meet these requirements.' 'The main beneficiaries may be jurisdictions close to the EU, such as the UK and Switzerland, depending on how the regulatory frameworks evolve there.'
Teraudkalns highlighted the benefits of MiCA, including enhanced investor protection and reduced risks of fraud, money laundering, and market manipulation. However, he also pointed out the downsides, noting the increased costs of establishing and operating crypto businesses, which could lead to market consolidation and reduced competition.
Despite these challenges, Teraudkalns emphasized that accessing the EU common market remains a significant advantage. Therefore, he noted that the shift toward more progressive and cost-effective jurisdictions within the EU is anticipated and already underway.
Changes in taxation may increase regulatory pressures
In addition to the EU's MiCA regulations, various member states are implementing supplementary measures to manage cryptocurrencies. For example, Italy has revealed plans to raise the capital gains tax on crypto assets from 26% to 42%, aligning it more closely with the taxation of other investment income. This change highlights a broader shift toward recognizing cryptocurrencies as mainstream financial instruments subject to standard tax regulations.
The increased tax rate is part of Italy's broader fiscal strategy aimed at funding government commitments and reducing the national deficit, marking Italy's pivot toward taxing emerging assets like cryptocurrencies as a primary source of public revenue.
Paybis co-founder Konstantin Vasilenko commented on the changing tax landscape. 'Cryptocurrency is no longer just a playground for tech enthusiasts.'