Author: Brian McGleenon, The Block; Translation: Bai Shui, Jinse 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 receive MiCA compliance certification. European regulators remain silent on whether stablecoins meet the new regulatory standards, creating uncertainty for USDT in the EU single market.
According to CoinGecko, the global market cap of USDT has declined over the past 10 days, falling from over $141 billion on December 19 to over $138 billion at the time of writing.
Potential impact of MiCA on Tether.
MiCA has established strict regulatory requirements for stablecoin issuers within the EU, including reserve and liquidity requirements. Agne Linge, Head of Growth at WeFi, pointed out that for large stablecoin issuers like Tether, meeting these requirements may pose economic challenges.
Linge noted: "The new EU laws now require small stablecoin issuers to deposit 30% of their reserves in low-risk commercial banks within the EU, while larger players 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 from 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 very high, with expectations of achieving $10 billion in profit by the end of the year."
Linge added that Tether is continuously diversifying its products and investments due to its substantial cash reserves, reducing the risks associated with stablecoin issuance.
Linge emphasized that Tether leverages its substantial cash reserves to diversify its products and investments, thereby reducing the risks associated with stablecoin products. The WeFi growth lead further pointed out that most EU countries provide a transition period of 6 to 18 months for compliance or exit, which may help mitigate the impact of abrupt withdrawals.
Due to ongoing regulatory uncertainty, some European exchanges have taken precautions. Coinbase Europe earlier this month listed USDT and five other stablecoins due to potential regulatory risks. This move is intended 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 awaiting 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.
Long-term impact of MiCA on the EU cryptocurrency landscape.
The comprehensive 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, noting that due to huge compliance costs and investment requirements, it may drive 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 necessitate a significant increase in investment 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."
Uldis Teraudkalns emphasized 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 that the costs of establishing and operating crypto businesses have increased, which may lead to market consolidation and reduced competition.
Despite these challenges, Teraudkalns emphasized that entering the EU common market remains a significant advantage. Therefore, he noted that the shift towards more progressive and cost-effective jurisdictions within the EU is anticipated and already underway.
Tax changes may increase regulatory pressure.
In addition to the EU's MiCA regulations, individual 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 towards recognizing cryptocurrencies as mainstream financial instruments subject to standard tax regulations.
The increase in tax rates is part of Italy's broader fiscal strategy aimed at funding government commitments and reducing the national deficit, marking a shift in Italy towards 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."