EU Agrees to Negotiate Historic MiCA Cryptocurrency Regulation

Bitcoin is a volatile asset and has been known to fluctuate more than 10% up or down in a single day.

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EU officials on Thursday reached an agreement on what is likely to be the first major regulatory framework for the cryptocurrency industry.

The European Commission, EU legislators and member states worked out an agreement in Brussels after many hours of negotiations. The move comes a day after the three major institutions completed measures to crack down on money laundering in cryptocurrencies.

New rules come at a brutal time for digital assets as bitcoin faces Worst quarter in over a decade.

The historic law, known as Markets in Crypto-Assets or MiCA, is meant to make life difficult for numerous players in the crypto market, including exchanges and issuers of so-called stablecoins, tokens that are designed to be pegged to existing assets such as the US dollar.

Under the new rules, stablecoins like tie and circle USDC sufficient reserves will need to be maintained to meet redemption requests in the event of a mass withdrawal. They also face transaction caps of up to 200 million euros per day if they get too big.

While EU member states will be the main enforcers of the rules, the European Securities and Markets Authority, or ESMA, is also empowered to intervene to ban or restrict cryptocurrency platforms if they are seen to not adequately protect investors or threaten the integrity market. or financial stability.

“Today, we are bringing order to the Wild West of crypto assets and establishing clear harmonized market rules that will provide legal certainty for crypto asset issuers, guarantee equal rights for service providers, and ensure high standards for consumers and investors,” said Stefan Berger. , the MP who negotiated on behalf of the European Parliament.

MiCA will also address the environmental issues associated with cryptocurrencies, with firms required to disclose information on energy consumption as well as the environmental impact of digital assets.

The previous proposal would have abolished crypto-mining, the energy-intensive process of minting new units of bitcoins and other tokens. However, in March, the deputies rejected it.

The rules will not affect tokens without issuers, for example bitcoinhowever, trading platforms will need to warn consumers of the risk of loss associated with trading digital tokens.

Regulators have also agreed on measures that will reduce anonymity when it comes to certain cryptocurrency transactions.

Authorities are deeply concerned about the use of crypto assets to launder ill-gotten gains and evade sanctions, especially in the wake of Russia’s ongoing invasion of Ukraine.

Transfers between exchanges and so-called “unlisted wallets” owned by individuals will need to be reported if the amount exceeds the €1,000 threshold, a contentious issue for crypto enthusiasts who often trade digital currencies for privacy reasons.

Non-fungible tokens (NFTs) representing ownership of digital objects such as works of art have been excluded from the offerings. The EU Commission has been tasked with determining whether the NFT needs its own regime within 18 months.

Unstable coins

Rules follow terraUSD collapse, a so-called “algorithmic” stablecoin that tried to maintain a $1 value with a complex algorithm. The defeat led to hundreds of billions of dollars erased from the entire crypto market.

“The EU as a whole is unhappy with stablecoins,” said Robert Kopic, secretary general of the cryptocurrency lobbying group Blockchain for Europe.

Politicians have been skeptical of such tokens, which seek to be pegged to existing assets like the dollar, ever since Facebook failed attempt to launch native token in 2019. The authorities feared that private digital tokens could end up threatening sovereign currencies such as Euro.

Paolo Ardoino, Tether’s chief technology officer, said the world’s largest stablecoin issuer welcomes the clarity of regulation.

In addition, Dante Disparte, director of strategy for Circle, said the EU’s structure represented a “significant milestone”.

MiCA “will be to crypto what the GDPR was to privacy,” he said, referring to the EU’s groundbreaking data protection rules that set the standard for similar laws elsewhere in the world, including California and Brazil.

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