Although digital assets have been around for more than a decade, they have only recently begun to capture the attention of the general public. At this point, everyone is attempting to get a piece of the cryptocurrency trend, as financial experts from all over the world present it as a viable long-term investment opportunity. Despite the meteoric rise in popularity of these assets, there is a widespread belief that there is still room for growth in this industry. This belief is based on the assumption that more people will educate themselves about the available financial benefits.
The fact that cryptocurrencies are decentralized assets is their primary advantage. As a result, unlike fiat currencies, they are not tied to any specific entity. Because they are in short supply, their value will continue to rise over time, acting as a hedge against inflation. The European Commission, the EU’s executive branch, has concluded that digitalization of financial transactions is the way of the future. They argue that the adoption of crypto regulation will make investing in cryptocurrencies less risky for investors and will provide greater legal certainty to those who issue digital assets.
The European Commission wishes to reduce market fragmentation and allow businesses that have been granted cryptographic authorization in one EU country to offer their services across the entire union. As a result, the European Union Commission issued a proposal titled Markets in Crypto-Assets Regulation, or MiCA, in September 2021. This proposal was included in a larger document known as the Digital Finance Package, which contained several other documents with the overall goal of strengthening the financial sector’s digital resilience.
What exactly is the MiCA, and when will it take effect?
Mica is a proposed regulatory framework in the European Union (EU) that has been in development since 2018. Its goal is to aid in the regulation of virtual assets and streamline distributed ledger technology. It is a 168-page document that focuses on establishing rules that govern stablecoins and crypto asset providers. Once it reaches power, it will unquestionably and irreversibly transform Europe’s digital asset landscape.
The document’s overt intention is to become the gold standard for the worldwide supervision of blockchain assets. However, there are concerns that it may go beyond its intended scope and impose onerous restrictions on businesses, effectively ending a large number of creative crypto use cases in the EU.
There is no set timetable for when this legislation will be passed due to the complex procedures that must be followed before something can be enacted as law in the EU. By 2024, the union is expected to have implemented a comprehensive regulatory framework to address the risks associated with blockchain technology and to oversee the activities of this sector. However, some people are optimistic and believe that the MiCA will become law much sooner than 2024.
What Regulations Will the MiCA Enforce for Crypto Assets?
To be clear, the majority of EU member states believe that cryptocurrency trading is perfectly legal. However, for the time being, individual member states are in charge of regulation. MiCA’s mission is to change all of that. It provides information on a wide range of crypto-assets, many of which are not yet covered by the union’s financial law. Asset-referenced tokens (ART), utility tokens, and e-money tokens (EMT) are examples of crypto-assets. The last two are examples of what users refer to as “stablecoins.” According to their supporters, by referencing the value of traditional currencies, these coins can keep their value constant.
All issuers of crypto-assets are required by the MiCA to first publish a white paper and then submit it to their respective national financial supervisory authority twenty days before the emission of their asset. The MiCA mandated this requirement. This regulatory body has the authority to prevent the issuer from carrying out their token distribution plans. Except for existing credit institutions, everyone else who wants to engage in crypto-asset-related activities such as trading, brokerage, or offering investment advice will need to obtain prior permission from their national supervisory authority. Furthermore, MiCA will enact regulations prohibiting insider trading and market manipulation on cryptocurrency trading platforms. Engaging in these activities will be immediately deemed illegal in the European Union once this framework is implemented.
The Importance of Compliance with Regulation in Regards to Cryptocurrency Transactions
At present, there is undeniably a void in the regulation of crypto assets, which is a void that the EU is obligated to fill. It is a problem that, in addition to contributing to fraudulent activity, plays a role in the inadequate protection of investors. Laws that are more clearly defined will help to reduce the risk of cyberattacks and will limit the ability to make illegal payments using crypto assets. A growing number of online businesses, particularly those that rely on secure and quick transactions, are beginning to accept cryptocurrencies as a primary form of payment. This trend is particularly prevalent among businesses that rely on secure and quick transactions. When it comes to the gambling industry, for instance, the significance of supplying customers with fast withdrawal options is difficult to overstate. The vast majority of gamers place a high priority on them due to the significant influence they have on the overall quality of the gaming experience. As a direct consequence of this, the use of cryptocurrency transactions is gaining traction in this industry at the same rate that they have in the supply chain, the music industry, and the video gaming industry.
Conversations about the regulation of crypto-assets have progressed from a niche topic to a priority legal agenda, and they are beginning to spread across the highest political institutions on the European continent. It is challenging to estimate when the MiCA will be approved and put into effect; however, it will be at least two years from now before the rules that are outlined in the MiCA will be enforced. The vast majority of professionals working in this industry believe that the only way this framework will be successful is if its requirements are not excessively stringent and if it allows startups to freely operate within this industry.