Introduction of MiCA and its Impact on the European Cryptocurrency Market
Date: 2024-07-15 Author: Henry Casey Categories: IN WORLD
With the introduction of Markets in Crypto Assets (MiCA) regulations, the European cryptocurrency landscape is undergoing significant changes. Mike Romanenko, CVO and co-founder of Kyrrex, predicts many opportunities and challenges for crypto players in European countries.
Expected Changes after MiCA Adoption
The introduction of MiCA marks a monumental shift in the crypto industry. The new rules will regulate various aspects of the industry, including crypto exchanges, custody of funds and customer verification processes. While these regulations may seem onerous at first glance, they are aimed at increasing the security and transparency of crypto transactions.
MiCA's primary goal is to protect end users by ensuring companies have transparent audit practices and maintain auditable reserves. The need for such measures has become especially clear following the multiple collapses of major crypto firms since 2020, including the collapse of FTX, which exposed vulnerabilities and risks in the industry.
“I believe that regulation will make it easier for institutional investors to enter the cryptocurrency market,” Romanenko noted.
Implementation Issues
Despite the long-term benefits, the initial phase of MiCA implementation will be challenging. There are around 2,000 virtual asset service providers (VASPs) in Europe, many of which are unprepared for the new rules. Local authorities will face pressure to review and approve applications quickly, which could lead to delays.
Some countries, such as Malta and France, have already begun adapting their rules in line with MiCA, but overall preparedness varies widely across Europe. This can lead to a period of confusion and disruption as companies strive to comply with the new standards.
The MiCA implementation process is designed for three years and includes the following stages:
1. Entry into force of MiCA (June 2023).
2. Deadline for waiver or reduction of benefits (June 2024).
3. Joining the MiCA app (December 2024).
4. End of the transition phase (July 2026).
MiCA has the potential to significantly impact the cryptocurrency market in the EU. Expected effects include:
- Improved consumer protection: Establishing clear rules for crypto assets, providing better protection for investors.
- Enhancing market integrity: By setting governance standards, MiCA promotes fair competition and the prevention of abuses.
- Simplified cross-border transactions: A harmonized regulatory ecosystem makes it easier for companies to operate abroad.
- Increased innovation: A pilot regime for distributed ledger (DLT) market infrastructures could lead to more efficient blockchain-based financial systems.
Unlike Europe, the US does not have a uniform regulatory framework for crypto assets, which leads to significant uncertainty. For example, Bitcoin is classified as a commodity, but the status of other digital assets remains uncertain.
“Despite the lack of clarity, the introduction of money transfer licenses (MTL) for crypto exchanges has paved the way for companies to legally operate in several states,” Romanenko added.
Leadership in Regulation and Compliance
Key aspects of promoting sound regulation of the crypto industry include:
- Commitment to Transparency: Using blockchain technology to improve transparency and efficiency.
- Strict compliance control: Implementation of monitoring systems and regular audits.
- Future-proofing through strategic investments: Integrating new technologies to improve services.
- Expansion of regulatory licenses: Obtaining licenses to expand service offerings.
- Adaptation to the global market: Strategic expansion of presence in the USA and other countries.
- Innovation for the future: Development of a comprehensive financial super application.
The introduction of MiCA represents a significant step towards creating a secure and transparent cryptocurrency market in Europe. While the transition may be difficult, the long-term benefits of increased regulation, increased institutional investment, and greater market stability are significant.
The MiCA framework can serve as a model for other regions seeking to effectively regulate their crypto markets. The lessons learned from Europe's regulatory journey will be invaluable in shaping the future of digital assets around the world.
