MiCA Regulation on Cryptocurrencies – what is it?

When they tell you that the cryptocurrency world is not regulated, you play a pun and answer them “Without regulation? It’s not MiCA true!“.

The MICA Regulation is in fact a set of rules of the European Parliament that wants to regulate the world of cryptocurrencies, stablecoins, exchanges and many other aspects of this world. Let’s have a brief overview of its main points.

Some details on the MiCA regulation

The acronym MiCA stands for “Markets in Crypto Assets”. This regulation was approved by the European Parliament on 30 June 2022 and according to the forecasts of the same Parliament it will be ratified by the individual states of the Union by the end of 2024.

The MiCA Regulation was born with the aim of protect citizens European and stabilize the world of cryptocurrencies. These could be the basis for possible future scenarios, such as the creation of a European cryptocurrency.

It should be noted that this first draft of the MiCA includes cryptocurrencies, stablecoins and exchanges. While it stays out there DeFi, or “decentralized finance”, i.e. financial transactions that instead of being linked to banks and intermediary bodies, rely on blockchains. Also excluded are NFTsi.e. digital content that represents works of art, music, games and collections of any kind, and which are linked to the blockchain.

MiCA and stablecoins

The MiCA is going to hit the stablecoins. In fact, stablecoin issuers will have to have a protected liquid reserve with an exchange rate of 1:1 with the stablecoin issued. A reserve that will be controlled by the EBA (European Banking Authority), to avoid the risk of insolvency.

We then find a maximum limit for stablecoin transactions, set at $200 million per day. This limit is a highly criticized part of the MiCA Regulation, in fact the main stablecoins now on the market, for example the UEDT and the UEDC, have daily trades for 50 and 500 billion dollars. The ceiling should therefore be revised upwards.

Finally, the entities that will issue their own stablecoin must have the registered office in Europe to be able to exchange it in the European Union. This is to be able to check that they actually follow the MiCA.

What will change after the approval of the MiCA?

To date it seems that for those who exchange cryptocurrencies there will be one greater security. In fact, even against possible insolvencies, the MiCA Regulation identifies those responsible for i CASP (Crypto Asset Service Provider), that is, those entities that manage the exchange between a cryptocurrency and a FIAT currency (ie cash) or between two cryptocurrencies. And the European Union will be able to impose restrictions if a CASP does not comply with the rules included in the MiCA.

We will also try to fix the problem recycling through cryptocurrencies. This will happen with the creation of an ad hoc body in the EBA, which will implement the already existing rules for financial institutions, but in relation to the subject of cryptocurrencies. It will also create a list of companies that will not be able to carry out CASP activities in the European Union. This will limit the access to the European Union of entities from states that have a high rate of money laundering.

There is also a focus onenvironmental impact of cryptocurrencies. In fact, all companies that have cryptocurrency assets linked to Proof-of-Work (PoW) they will have to deliver documentation on their environmental impact. However, the MiCA will not ban PoW cryptocurrencies, but will limit their diffusion by cutting state incentives linked to this kind of technology.

Payments in cryptocurrencies between individuals will not be affected by the MiCA. However trade cryptocurrencies between one centralized exchange and another will have a more complex procedure. These transactions will need to be tracked and reported to a European body. Withdrawing cryptocurrencies from an exchange or private wallet will only require tracking for amounts over €1,000.

What effects will the MiCA Regulation have on the European market?

The sentiment that the cryptocurrency sector has towards the MiCA is very positive. In fact, many believe that the way to achieve mass use of cryptocurrencies must necessarily pass through clear and precise regulation.

In addition, the greater control over the exchanges it will prevent unreliable companies to enter the European market, protecting investors. In short, the wish is not to see what happened to FTX again.

We’ll see then whether these expectations will be realized or not. In the meantime, if you want to read the text approved by the European Parliament, you can find it here.