The Impact Of Harmonized European MiCA Regulation

Yesterday, Christine Lagarde stated the European Central Bank (ECB) is looking into the benefits and risks of a digital currency. According to Lagarde, rather than act as a replacement for cash, a digital euro would “complement” traditional money and further provide an alternative to “private digital currencies” for EU citizens, This, she said, would “ensure that sovereign money remains at the core of European payment systems.”

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Q2 2020 hedge fund letters, conferences and more

The MiCA Regulation

In September 2020, the European Commission presented a draft for comprehensive regulation of "crypto assets" (digital, blockchain-based assets), which is expected to come into force at the end of 2022. The regulation "Markets in Crypto-assets" ("MiCA"), which is directly applicable in all Member States, describes the most extensive regulation of digital assets to date, capturing this entire spectrum of crypto assets and provides differentiated and detailed rules for Bitcoin, Ethereum, stablecoins like Libra and Tether, as well as utility tokens.

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Please find commentary below from crypto industry experts with their takes on the impact harmonized regulation on the European level has for the crypto asset industry, Stablecoins Vs CBDCs Vs Cryptocurrencies as well as comparisons to the latest guidance issued by the U.S. Office of the Comptroller of the Currency (OCC.

Dave Hodgson, Chief Investment Officer of NEM Group and Managing Director of NEM Ventures, said, 

I think Lagarde is correct that a digital Euro should be seen as complementary to the existing system. It is not even a parallel solution but an additional feature that is added to the current monetary system.  The majority of Euros are already transacted digitally through inefficient, expensive and centralised systems that are expensive and slow. A proper Euro CBDC would allow the increased efficiency, security, and reduced cost that digital transactions lack in the current system. Other regions are ahead of the EU on this topic but the EU is in a unique position to span national borders due to the innovation already seen in the Euro currency 20 years ago.”

Legal Clarity On Crypto Assets

Luciano Nonnis, CEO and Founder of DXone

“A recently leaked version of new European Commission rules represents an all-encompassing set of regulations on the trading or issuance of digital assets in the 27-nation bloc. The Markets in Crypto-Assets (MiCA) draft legislation provides legal clarity on crypto assets, such as cryptocurrencies, security tokens, and stablecoins. It is similar to Europe’s Markets in Financial Instruments Directive (MiFID), a legal framework for securities markets, investment intermediaries, and trading venues.

MiCA is a comprehensive regulatory framework and covers assets from Bitcoin to Libra. The proposal broadly defines crypto-assets and defines service providers similar to the Financial Action Task Force (FATF).  The regulations require crypto-asset issuers to create a light version of an investment prospectus, including information sheets known as “white papers.” Crypto asset trading, furthermore, will be aligned with existing capital market regulations and insider trading and market manipulation will be punishable under the legislation.. 

The proposal presents considerable challenges for DeFi projects while inviting further institutional investment into the crypto industry. It favours banks and traditional investment firms since they are positioned to weather the added costs of such far-reaching regulations. Smaller startups, in particular, face challenges such as high regulatory hurdles, and innovation could be stifled.

The broad nature of the regulations hints that the European Commission expects a  rapidly growing crypto sector in the coming years. Crypto has long operated in a gray area, but MiCA shines a spotlight on the nascent industry. One thing is for certain––EU regulators mustn’t regulate crypto and blockchain out of existence.”

Jackson Mueller, Director of Strategy at Securrency

“The draft framework that was recently leaked highlights the European Commission’s concerns with a nation-by-nation approach to regulating digital assets, which several countries within the EU are moving forward on. A harmonized regulatory regime developed at the supranational level and applied across all member states could provide for greater legal and regulatory certainty to industry and remove obstacles that impair the flow of or increase the cost of value moving across country lines. The European Commission’s concerns are reflective of federal (and state) concerns here in the US with state-by-state regulatory regimes and ongoing efforts to develop initiatives designed to bring greater standardization and harmonization to a fragmented regulatory system.”