After years of crypto scams, money laundering cases, and sudden collapses of major platforms like FTX and Celsius, the European Union realized it needed clear rules to protect its people and economy. Inconsistent and fragmented regulations across EU countries allowed some bad actors to exploit investors and engage in illicit activities.
To fix this, the European Union (EU) created a new law called the Markets in Crypto-Assets Regulation, widely known as MiCA. This law aims to set the same rules for all EU countries and make the crypto world safer and more trustworthy. It issues licenses for crypto companies, pushing them to follow strict conduct rules and take strong steps to prevent fraud and money laundering.
What is MiCA?
The Markets in Crypto-Assets “MiCA” regulation is a legal framework established by the EU that regulates crypto assets over their entire lifecycle.
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The union’s crypto regulation idea came into consideration in the year 2018, when the authorities became worried about the digital assets market with its risks, which turned out to be very expansive very fast.
The European Commission, in its proposal made in September 2020, introduced MiCA as part of the larger Digital Finance Package of the EU. The purpose of the proposal was to set up a single regulatory framework for crypto-assets within the EU, safeguarding investors, preventing market abuse, and ensuring financial stability.
In the course of this journey, the proposal was discussed and revised by the European Parliament, the Council of the EU, and others who were involved. Agreement on MiCA, the first EU-wide regulation dealing with crypto, with rules unifying across the member states was reached among the EU institutions in June 2022.
The final draft was accepted by the Council of Europe on May 16, 2023, and it appeared in the EU’s Official Journal on June 9, 2023. It took on the designation of Regulation (EU) 2023/1114, with its rules being implemented gradually beginning June 2024.
How will MiCA shape the EU crypto market industry?
Under MiCA, any company in the EU planning to provide services relating to crypto, like custody of digital assets, investment advisory services, or operation of a trading platform, must first get the registration of the respective financial regulator of the country where it is based. Strictly controlled companies will have to provide safe and fair operation as part of their compliance.
You will have to protect customer funds, said the company, along with steering clear of conflicts of interest and being open in providing information about your operations. All these measures are aimed at the cryptocurrency market to become very stable and trustworthy thus ensuring complete investor protection.
Apart from that, MiCA also takes into account the rules applicable to crypto companies that do develop and or launch coins. A detailed document that is called a “whitepaper” must be published by them which would contain what the crypto asset is, what the risks of it are, and what the rights of the buyer will be.
The case is similar with stablecoin issuers whose virtual currencies are associated with traditional currencies like the euro or U.S. dollar. These issuers are required to keep 1:1 financial reserves with the central bank that is considered secure, create strong internal governance mechanisms, and also keep the right to redeem in order to maintain the stability of their value.
These measures over and above that are meant to safeguard users and minimize the chances of the market getting hit by the downfall of any company.
What will MiCA actually bring to the EU crypto market?
The MiCA regulation has brought about a radical transformation in the EU crypto market by providing better security, clearer regulations, and more shareholder trust.
For companies: MiCA has created a whole bunch of new rules, especially for the crypto exchange and wallet app operators. These businesses will have to obtain a license and be governed by the unambiguous rules when releasing new coins or tokens.
For stablecoins: There are also stringent rules imposed by MiCA on the crypto coins that are backed and pegged to real-world assets like fiat currencies and gold. Given that such coins can be perilous if not properly managed, the law makes it incumbent upon the respective companies to maintain a sufficient reserve, to have a capable management, and to have the salvation of regulation.
For money laundering and terrorism financing: All crypto companies will be subject to the same safety checks as European banks under MiCA. This will be a significant step in the fight against the illegal usage of crypto.
For investors: The new law requires companies to unambiguously define their services, be truthful in their advertising and notify users of risks before they invest. The purpose of these regulations is to minimize the occurrence of fraud and dishonesty.
In order to guarantee compliance with the rules, local authorities in every EU country will be in charge of supervising crypto firms. Besides, a larger team known as ESMA will be responsible for overseeing major stablecoins and cross-jurisdictional projects, while national regulators will handle most crypto services.
Who will MiCA affect the most?
MiCA is going to have a significant influence on a lot of people and businesses in Europe that are somehow related to crypto.
Crypto exchanges and wallet applications will be the ones suffering the most. They will have to obtain a license and comply with regulations, including the safeguarding of users’ funds and the provision of insurance to clients.
The companies issuing stablecoins will be required to disclose, through some kind of audit, that they have sufficient funds set aside to cover the coins. Besides, they will need to have very stable and effective systems in place to manage the coin’s value and, hence, to prevent a situation of high price volatility.
Gradual crypto startups will have to produce user-friendly brochures in which the features of their coin, the risks, and the expectations from users are outlined.
Under MiCA, the investors will enjoy a better protection, but at the same time, they will be required to divulge personal information, like ID, when accessing crypto services, which could cause privacy issues.
To sum it up, all the participants in the EU crypto market, particularly the businesses, will be compelled to adopt and adapt to these new rules.
What are investors afraid of about MiCA?
MiCA is intended to be a safer and more organized market for the European crypto investors, however, there are still concerns from some of the investors.
The legislation requires strict identity verification, KYC, and more powerful AML rules. In order to provide their services, crypto exchanges will demand customers to give their private information.
A part of the investors is disturbed regarding the privacy issue. They are anxious about the whole process of their data being collected, stored, and utilized.
Although the regulations are aimed at preventing fraud and crime, others consider it a violation of the basic tenets of cryptocurrency such as decentralization, privacy, and personal rights.
When did MiCA come into effect?
MiCA was enacted in June 2023, and the initial set of regulations which principally addressed stablecoins began in June 2024. The remaining part of the law that included the regulations mainly on cryptocurrency services and exchanges in December 2024.
The additional regulations and the technical guidance will keep on being released after the first quarter of 2025, and this will give the businesses more clarifications on how to comply with the law in their day-to-day operations.
MiCA represents a tremendous advance in the direction of establishing the crypto market in Europe as a safer, more stable, and also more trusted environment. Besides, the setting of stringent rules for firms and the safeguarding of ordinary users are the ways through which the EU wants to counteract frauds and to prevent abrupt platform collapses.
Yet, although the good intentions are many, there are still skeptics among the investors. They are concerned about the amount of information that they will have to disclose and whether the regulations would strip away the freedom and privacy that initially attracted them to crypto.
Prior to the acceptance of MiCA, the crypto community was concerned that it could mean a mining prohibition, this would directly strangulate Bitcoin. Although that suggestion was disregarded, a different worry remains. There are those who argue that MiCA is merely the first step towards a completely regulated digital euro. If this is the case, will the crypto scenario in the EU be centralized, as the central banks would be the only ones with the power? Or is it just a move towards greater safety and trust?
