Crypto will be tamed but only if the world swears loyalty to Brussels
Approved by the European Parliament in October, the much-vaunted Crypto Asset Markets Bill (MiCA) spearheads the global push to regulate crypto.
With a focus on consumer protection, enhanced anti-money laundering guidelines and the first comprehensive classification of crypto-assets, MiCA comes amid this year’s bloodbath.
The crypto industry’s market capitalization has shrunk from $2.8 billion in November 2021 to $900 million a year later and $2 billion worth of crypto has been stolen from blockchain bridges alone this year.
An all-encompassing frame like the MiCA is certainly the right move, however, the European-first ‘my way or the highway’ approach will drive the bills down.
Tentatively unveiled in June, MiCA’s Eurocentrism is most apparent in its Crypto-Asset Service Provider (CASP) definition, crypto-asset classifications, and transaction volume limits.
Under Section 33, CASPS – companies that offer crypto to retail or institutional customers – can only operate with a MiCA-approved license or if their custodial services are provided by a headquartered bank. is in the EU.
This would affect large companies like Coinbase, Archax, Circle or Kraken, all of which are headquartered in the US or UK and are banked by banks in those countries.
The second element of Eurocentrism impacts most major stablecoins. According to data from CoinGecko, there are over 86 stablecoins, with Tether (USDT), Circle’s USDC Coin (USDC), and Binance (BUSD) accounting for 90% of the market.
According to the MiCA definition of e-money or e-money, stablecoin issuers must use euro-denominated trading pairs.
Yet data from The Block indicates that only 0.4% of pair cuts are made in euros. Additionally, the CASP regulation would also impact major stablecoin issuers since Tether is based in the Bahamas, Circle in the US, and Binance in Hong Kong and the US.
At present, there is no indication that any of these leviathans will head the most towards mainland Europe, despite the launch of euro-denominated stablecoin pairs.
Finally, the regulation of trade volume under the MiCA is unrealistic at best. Section 19b limits the number of transactions PSAPs can process per day. Within the framework of MiCA, the volume of transactions cannot exceed one million transactions and not exceed a value of 200 million euros.
If a CASP or e-money token issuer exceeds both limits, it is required to cease operations immediately. This would impact any entity headquartered outside the EU that transacts in crypto – from exchanges to traditional banks, the trading volume cap will have a chilling effect on businesses.
The question is why such a protectionist approach? Restrictions on CASPS and e-money token issuers are intended to prevent risks such as those posed by Facebook, now Meta, Libra stablecoin.
Launched in 2019, Libra set out to develop a new global digital currency and the necessary infrastructure. Not only did Meta have 2.5 billion users worldwide, but it also had the technological capabilities and funds to directly challenge the monetary authority.
As Henri Arslanian, the author of The Book of Crypto, said, Libra was a “bomb”. Although Meta and Libra are no longer a threat, the EU and MiCA have made it clear that any challenge to the Euro from the crypto space would not be welcome.
Just as MiCA is pushing an EU narrative, Germany is now planning to toughen EU guidelines for non-German banks. Proponents of short-term EU capital market reform could mean that cross-border business with Germany could no longer be conducted in the same way.
Germany currently allows banks located outside the EU to offer cross-border services, but the new Capital Requirements Directive VI seeks to prohibit such operations. Only banks with a physical presence in Germany would be allowed to serve customers in the country.