Cryptocurrency exchanges should offer deposit insurance, as investors are the only ones responsible if they go bankrupt or suffer hacks. The MiCa law foresees a maximum transaction volume of EUR 200 million daily, which is questionable as users already invest more.
The upcoming regulation of crypto assets in Europe has been subject to controversial debate for a long time. The fear of losing privacy and decentralization has offset the possibility of further security and institutional investment.
The EU Commission, Parliament, and Council agreed on a bill in July, which the ECON committee of the European Parliament recently confirmed. Therefore, the EU will become the first to regulate crypto markets worldwide, as other countries are also interested in controlling the industry.
The MiCA (Markets in Crypto-Assets) law will not enter into force until 2024, but it will bring changes to investors.
The EU Seeks to Establish the MiCA Law as a Standard
The ECON Committee of the European Parliament approved the MiCA law after discussing its possibilities, challenges, and opportunities for two years. Although the officials of the EU Parliament had previously voted 28 to 1 in favor, the law will not come into effect until 2024.
The MiCA law aims to regulate the issuance, distribution, and trading of cryptocurrencies, being the first comprehensive law regulating them. Therefore, other governments will use it as a global standard when drafting their regulations.
The crypto assets not regulated by existing financial services laws will experience the effects of the MiCA law. The European Securities and Markets Authority (ESMA) will decide what criteria will apply.
The objectives of the MiCA include legal certainty for issuers, competitive conditions for service providers, and high standards for consumer protection.
Cryptocurrency Exchanges Must Face Further Regulation due to the MiCA Law
Since most investors process their transactions through cryptocurrency exchanges, those platforms play a crucial role in the industry. However, they will need the authorization to operate in the EU due to the MiCA law.
Cryptocurrency exchanges must provide their clients with a full whitepaper for those crypto assets without a clear issuer. Additionally, they must emphasize the risks of trading crypto assets, implement clear marketing standards, and address the issue of market manipulation more intensively.
However, the most relevant point is that cryptocurrency exchanges should offer deposit insurance, like traditional banks. Since user assets do not receive enough protection on cryptocurrency exchanges, investors are the only ones responsible if they go bankrupt or suffer hacks.
The MiCa Law Forces Stablecoin Companies to Meet Stricter Requirements
Because of the MiCA law, stablecoin companies must have significantly more strict requirements. The Terra blockchain project contributed to that, as TerraUSD (UST) was an algorithmic token not collateralized.
By using an algorithm, the value of the UST stablecoin had parity with the US dollar. In May, the collapse of that peg caused panic selling and destabilized the value of the Terra (LUNA) token. The crash of a large ecosystem like Terra affected the overall market, bringing it down.
Stablecoin companies will have to have liquid reserves in a 1:1 ratio and provide users with enough protection in case of insolvency.
Besides, the MiCa law foresees a maximum transaction volume of EUR 200 million daily. Its implementation is questionable as investors already invest USD 50.4 billion and USD 5.66 billion in Tether (USDT) and USD Coin (USDC), respectively.
By Alexander Salazar
