The European Union’s new crypto rules, the Markets in Crypto-Assets Regulation (MiCA), have triggered fears customers could become exposed to riskier alternatives overseas.
The rules came into force on January 1.
Despite MiCA’s full application, many important topics remain unclear, a leading cryptocurrency lawyer told Brussels Signal on January 3.
“Such ambiguities are raising doubts about MiCA’s capacity to ensure regulatory stability,” said Kamil Mosoń, a financial regulation lawyer at DLK Legal specialising in crypto-assets and MiCA.
These concerns were “particularly critical” and posed “significant challenges to developing a cohesive and effective regulatory framework for the crypto-asset market,” he added.
Unresolved issues included how the new rules would affect decentralised finance (DeFi) and the EU’s existing payment rules (PSD2), said Mosoń.
The new EU regulations contrasted with a deregulated approach the US President-elect Donald Trump’s administration has promised, aiming to encourage cryptocurrency development.
In December, Trump’s son Eric had promised at the Bitcoin Mena 2024 conference in Abu Dhabi, United Arab Emirates, that his father would be “the most pro-crypto president” yet.
Aaron Evencio Sanchez, head of partnerships for Exponential Science, a blockchain and AI research hub in London, said recently: “The MiCA regulation hammer is about to drop.
“Time is against them and a surprising amount of crypto firms are unprepared and the consequences are quite severe.”
Already, MiCA had caused European and other major exchanges such as Coinbase to remove the world’s largest stablecoin, Tether, for noncompliance.
Major companies including Visa, PayPal and Stripe have recently made substantial investments in stablecoins, designed to be pegged to the value of a mainstream currency such as the US dollar or euro – making their values fluctuate less wildly than other cryptocurrencies including Bitcoin and Ethereum, which are not backed by hard assets.
With MiCA regulations forcing Tether out, “who will be the loser here, Europe or Tether?,” asked Jelena Zecevic of the blockchain research and development company NIMA.
Tether CEO Paolo Ardoino has blasted MiCA’s regulatory rules requiring more than 30 per cent of cryptocurrencies’ liquidity to be deposited in banks.
“The 30 per cent rule is meant to guarantee solvency, yet banks themselves are prone to runs and collapses,” argued Quinten François, a cryptocurrency company co-founder.
MiCA took full effect when its “implementation phase” ended on December 30 2024, with an 18-month “transitional” phase following.
“We are observing a notable shift in the European market, where crypto asset firms, including exchanges, are delisting stablecoins that lack the requisite authorisations,” Patrick Hansen, director of EU strategy and policy at Circle, whose USDC digital dollar stablecoin is used by Visa, BlackRock and Worldpay, told Brussels Signal.
“Europe is not home to the largest crypto businesses today [so] why did the EU decide to front run the world?”questioned Hansen.
Instead, most cryptocurrency “value creation and capture is happening in the US and Asia”, which “raises the question why the EU decided to move forward with such a comprehensive, region-wide binding set of regulations in the first place,” he added.
For Hansen, a “worst case scenario” meant stablecoin issuers would “make a big detour around the EU”.
Consumers in the bloc would then either be cut off from innovation, or “continue to use and be exposed to the largest offshore pools of liquidity and utility”, he said.
The decentralised nature of the crypto industry “poses risks of regulatory arbitrage, where businesses may gravitate toward jurisdictions with more favourable frameworks,” Wefak Alkabour, a London technology lawyer, told Brussels Signal.
It also raises questions “about the competitiveness of European exchanges if widely used assets are excluded,” she added.
Regulators could decide to apply MiCA rules to NFT (non-fungible tokens) and DeFi (decentralised finance) projects, which is “left open to interpretation” by the rules, Hansen said.
All this “would inevitably lead to teams and resources migrating out of the EU”.
However, under another, rosier scenario, MiCA would lead more major EU institutions adopting crypto-assets and that major European banks would “roll-out crypto-asset services in the next 48 months”, Hansen added.
