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The first regulatory framework in the world for cryptocurrencies has received final approval from the European Union, making the region a pioneer in confronting the collapses, scams and generally skeezy nature of the field. It also marks something of a dividing line for cryptocurrency itself, which as conceived by pioneers like Bitcoin was supposed to exist outside the usual economic structures, as a tool of empowerment for the (anonymous) little guy. It hasn’t been that for years, of course, but that was a core idea.
The framework is called the Markets in Crypto-assets (MiCA) regulation, and with this approval will come into force at some time in 2024 (the European Parliament already gave its own approval in April). It notably includes a requirement that any organisation established to issue, trade or store crypto assets now has to be licensed in order to operate in the EU.
MiCA also requires firms to collect and make available “certain information about the sender and beneficiary of the transfers of crypto assets”, which is an attempt to tackle crypto being used for money laundering which, incidentally, means trades will no longer be anonymous. So there goes another pillar of crypto.
“Recent events have confirmed the urgent need for imposing rules which will better protect Europeans who have invested in these assets, and prevent the misuse of crypto industry for the purposes of money laundering and financing of terrorism,” said Swedish finance minister Elisabeth Svantesson.
“Today’s decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war. Doing so will no longer be possible in Europe without exposure: it is an important step forward in the fight against money laundering.”
The final version of MiCA has removed some restrictions that were in earlier drafts, notably pulling back from an outright ban on proof-of-work cryptocurrencies (the ones that are using more electricity than every PC in the US). This was likely dropped because it would have also banned trading in these currencies, though crypto regulation that banned Bitcoin and Ethereum straight out of the gate would have been fun to watch: It’s also a reminder just how precarious these assets are, even the established ones, because it easily could have happened.
Lawmakers in the UK continue to work on similar crypto regulations, while the US is studying the EU framework and looking to implement its own version. At the moment, the US authorities have been using existing securities rules to bring legal action in the sector, and last week a commissioner at the U.S. derivatives regulator CFTC admitted “we are wandering in the desert a bit” when it comes to working out new rules. Close alignment is likely because of the global nature of crypto trading and, for their part, crypto firms say this is what they want to see in regulation: a consistent approach across territories (good luck with China).
These plans are being moved forward with urgency after the annus mirabilis of 2022 in crypto, which saw the multi-billion collapse of FTX following on from the contagion that began with the collapse of the so-called stablecoin TerraUSD and the linked cryptocurrency Luna. That really is just the tip of the iceberg: Write a book on the crypto disasters of 2022, and you’d probably need a second volume. And the truth is, no matter how many rules and regulations are layered atop it, crypto is by its nature a speculators’ market, and it’s hard to see how that will change. Particularly in a world where all of our ‘real’ money is basically digital now anyway.
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