Everything You Need to Know About The EU’s MiCA Cryptocurrency Rules

Paigambar Mohan Raj
Source: Forbes

On April 20, the European Parliament approved the European Union’s (EU) MiCA (Markets in Crypto Assets) regulations. The development brings Europe closer to becoming the first region with defined rules for the budding cryptocurrency sector. The enforcement period will begin in June 2023, after a few last administrative formalities are completed. However, the rules won’t go into effect for 12 to 18 months.

These laws seek to legalize cryptocurrency use and lessen the tailgate hazards. This represents a big step in addressing the problems brought on by the growing use of digital assets. The action taken by the EU may serve as a model for other jurisdictions.

What are the EU’s MiCA cryptocurrency regulations?

The regulations will place a number of obligations on cryptocurrency exchanges, token issuers, and traders. Transparency, disclosure, authorization, and transaction oversight will be the cornerstones of the MiCA rules.

Sales of new tokens will be subject to regulation. Platforms must advise users about the dangers involved with their operations. Furthermore, it will be necessary for stablecoins like Tether and Circle’s USDC to keep enough reserves on hand to fulfill redemption requests in the case of large-scale withdrawals. Moreover, stablecoins that grow too big will have their daily transaction volume reduced to 200 million euros ($220 million). Additionally, platforms must maintain a daily average of EUR 200 million and 1 million transactions for stablecoins (currencies not pegged to the euro).

The ESMA (European Securities and Markets Authority) will have the authority to intervene and ban platforms that do not protect investors. The ESMA can even intervene if a platform endangers the integrity of the market or financial stability. Furthermore, MiCA addresses the environmental issues related to cryptocurrencies. The regulations require businesses to disclose their energy usage as well as the environmental effects of digital assets.

There is also a separate measure to lessen the anonymity involved in transfers of cryptocurrencies like Bitcoin (BTC) and stablecoins. Moreover, transfers exceeding the 1,000-euro limit between exchanges and self-custody wallets will require reporting.

What about NFTs?

Non-fungible tokens (NFT) that represent works of art, digital collections, or real estate will not fall under the MiCA regulation. As a result, they will not be bound by the laws in the text. NFTs will be regarded as fungible if they are fractionalized or produced in series. Because they are suitable as a form of payment, they will be subject to restrictions.

The measure puts the EU one step ahead of the U.S. and UK, which have not yet introduced legal regulations for the crypto industry. A U.K. official stated on Monday that precise cryptocurrency regulations may go into effect in about a year.

After the EU legislation takes effect, crypto businesses will be allowed to “passport” their services across other member states using the licenses they have in one European country.