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The Markets in crypto Assets Regulation (MiCA) marks an important milestone in the European Union's path towards regulating the rapidly evolving cryptocurrency market. Its timeline and provisions are of immense importance to both businesses and cryptocurrency investors. As we approach crucial dates, starting with the implementation of the stablecoin provisions from June 30, 2024 and the full implementation of MiCA on December 30, 2024, the cryptocurrency landscape is going through a phase of transformation.
Over the next two years
MiCA's staggered deadlines and transition periods, which extend until June 30, 2026, imply a period of fragmented implementation across the EU and the European Economic Area (EEA). Jurisdictions such as Ireland (12 VASP), Spain (96 VASP) and Germany (12 VASP) will grant a 12-month transition period. In contrast, other jurisdictions will offer longer periods, such as France (107 VASP) with 18 months, while Lithuania (588 VASP) will likely only grant five months. This transition phase will drive market consolidation as not all existing service providers will obtain MiCA licenses. Many will look to take advantage of this interim period before closing operations.
The race between EU and EEA jurisdictions to become the leading hub for crypto activities is intensifying, with jurisdictions such as France, Malta and Ireland vying for the top spot. However, regulators’ readiness and compliance for cryptoasset businesses pose significant challenges. Regulators face an adjustment period to upskill their staff to process MiCA applications, particularly in jurisdictions with high volumes of applicants. The complexity of the various business models, spanning numerous products unfamiliar to regulators, exacerbates this challenge. The widespread lack of specialist knowledge to authorise and supervise this sector requires significant training efforts.
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Challenges for crypto companies
The MiCA, together with the wide range of related Level 2 measures (many of which still need to be finalised) and other applicable EU instruments, such as anti-money laundering laws, the Digital Operational Resilience Act (dora), and the Electronic Money Directive (EMD), create a complex regulatory framework. Understanding which provisions apply to each type of entity and what documentation must be implemented will be a challenge for some.
The exclusion of cryptoassets, particularly stablecoins, from EU exchanges due to their issuers failing to obtain their licenses in time will pose considerable obstacles and limit the availability of certain assets to consumers.
Adapting to MiCA will challenge many entities and require substantial investments in technological infrastructure. Travel RuleA requirement that information must be shared between VASPs with every cryptocurrency transaction also comes into effect at the same time as MiCA. The Travel Rule requires CASPs to transfer a substantial amount of information about the originator. This includes their address, personal identification number and customer identification number. In exceptional cases, it may even require disclosure of the originator’s date and place of birth. This adds another layer of complexity, further highlighting the need for harmonisation within the EU and solutions to comply with the Travel Rule that are interoperable and allow for secure data sharing while preserving user privacy.
Main results of the cryptocurrency market
Despite the challenges, MiCA inspires confidence in EU entities due to increased regulatory oversight, promoting investor protection and attracting general institutional participation. Enhanced consumer protection measures mitigate risks such as fraud and hacking, building trust among retail customers.
The MiCA reporting requirements will make more data available to regulators across the EU, allowing them to monitor market activities effectively. The ability to freely process activities across the EU will facilitate cross-border operations and reduce regulatory fragmentation, while expanding market reach.
The prescriptive nature and comprehensive regime of MiCA sets a precedent for global regulatory frameworks. Other jurisdictions are already observing and may replicate some of MiCA’s provisions and approach, contributing to regulatory harmonisation on a global scale. However, concerns remain as to whether this will stifle growth and innovation and whether companies will seek to relocate to more permissive and less restrictive jurisdictions.
Steps after MiCA
MiCA’s gaps in regulating emerging areas such as true defi (the provision of financial services or issuance of financial assets without identifiable intermediaries and without a single point of failure), lending, and nfts require ongoing policy discussions and further regulatory measures. Reports on these aspects will inform future regulatory developments, potentially leading to a second iteration of MiCA in at least the next four to five years or to complementary measures.
MiCA marks the beginning of a new era in cryptocurrency market regulation, aiming to balance innovation with investor protection and market integrity. While challenges remain, MiCA lays the foundation for a more transparent, secure and inclusive cryptocurrency framework in the EU and beyond. As the cryptocurrency landscape continues to evolve, regulatory regimes must adapt to emerging trends and technologies, ensuring sustainable growth and fostering investor confidence.
