Post-MiCA Europe: A new and promising playground for crypto

The evolution of the crypto market has not slowed down in recent months despite the sector’s many challenges. The observation is the same with regard to regulations. Particularly in Europe, the operating rules for this booming industry continue to thicken. The objective of European regulatory institutions is to establish a certain balance between investor protection and financial stability. This, even if we can fear a weakening of innovation, a fundamental principle for the progress of crypto. In the following lines, we will focus on current crypto regulatory initiatives, examining their impact on the attractiveness of the European market for players in the sector.

The latest developments in crypto regulation in Europe

The European Union (EU) had already struck a big blow with the Regulation on Markets in Crypto-Assets (MiCA). This legislation, which is due to come into full force from December 30, 2024, is to date the only coherent legal framework for crypto in the world. Many analysts and experts around the world have hailed this initiative as one of the most interesting. Notably because it provides a harmonized European framework replacing national regulations for the offering and trading of assets. But also for the provision of crypto services and the prevention of market abuse.

However, the EU clearly does not intend to stop there. With the news surrounding terrorist incursions into crypto used as a means of financing these illicit operations, the community organization seems to want to go further. Recently, it became known that the EU is considering decisive measures to secure crypto transactions. The project is supported by the Council and the European Parliament who have agreed to this effect. If it is not yet effective since it has not yet been adopted, it will have certain implications.

Indeed, the EU actually wants to strengthen its fight against money laundering. To achieve this, it intends to create a supervisory authority and a stricter regulatory framework. Objective: extend anti-money laundering obligations to various entities such as financial institutions, banks, real estate agencies, asset management services, casinos and merchants. But also to crypto companies. In fact, crypto service providers established in Europe will have to carry out in-depth investigations on their customers and report, where appropriate, any activity deemed suspicious. To do this, they are required to control transactions of 1000 euros or more.

In addition, the EU plans to set a limit on cash payments. These would not exceed 10,000 euros, with States having the possibility of lowering this cap. Thus, ownership would be effective and more transparent. At the very least, financial intelligence units will have immediate access to relevant information to combat money laundering and terrorist financing. It is clear that the police of financial activities, crypto included, could soon be strengthened. Paradoxically, the European crypto market has never been so attractive.

European financial regulation attracts crypto investors

We might have expected this burst of normativism to weigh down the attractiveness of the European crypto sector. In fact, quite the opposite is happening. Indeed, Europe is showing a resurgence in the crypto sector driven by growing investor interest. With the adoption of the MiCA regulation, the Old Continent appears to be the catalyst for positive economic growth in the crypto field.

Indicators including trading volumes, investments, use of the euro in the crypto market, and Europe’s share in global trade indicate a positive trend. A dynamic that possibly makes sense. Despite criticism from players in the European crypto industry towards the aspects deemed to be restrictive of this standard, it is undeniable that investors were looking for a clear regulatory framework.

In any case, that’s what the figures indicate. In December 2023, euro-denominated trade in the crypto sector, for example, reached 16 billion euros. This concretely represents an increase of 220% compared to the previous three months. A spectacular upward trend has increased the share of the European crypto market from 6.2% to 7.7% in one year. Although Europe remains behind Asia and North America, it appears to be on track to regain share in global markets.

On analysis, the MiCA regulation, criticized for its restrictive but clear nature, would have strengthened investor confidence in the European Web 3.0 sector. Which is already resulting in an increase in volumes. Analysts believe the momentum could intensify with the bull run expected this year. For now, companies already established in the 27 countries of the European Union will benefit from a competitive advantage thanks to the MiCA regulation. The latter leaves the unregistered platforms in the lurch. However, some think that beyond appearances, the MiCA standard puts more pressure on crypto firms.

Increased pressure on crypto service providers?

It seems, according to some analysts, that new developments in crypto regulation in Europe could harm the region’s economy. This is because they could put considerable pressure on crypto-asset service providers (CASPs).

Indeed, the European Banking Authority (EBA) has established guidelines in line with recent decisions of the Council and the EU Parliament on the fight against money laundering. Measures that intensify the requirements imposed on PSAPs to strengthen their risk management processes.

Focusing on a complete overhaul of the duty of care towards their customers, the guidelines recommend improving transaction monitoring systems. This, by paying increased attention to the risk factors specific to cryptos. In this case, transactions involving self-hosted addresses, decentralized platforms and unregulated crypto providers.

With all this, PSAPs are forced to significantly expand their monitoring and reporting obligations. This is not without consequences, as they could suffer an increase in their operational costs with challenges posed to smaller players. Although the new rules aim to strengthen security and integrity, the potentially negative impact on innovation and competitiveness requires careful consideration. This regulatory approach risks dissuading EU participation in cutting-edge innovations related to the crypto sector.

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