Crypto: MiCA regulations threaten stablecoins

The MiCA law comes into force on June 30. Too vague, too restrictive, the law is controversial and worries professionals in the cryptocurrency sector. In the long term, stablecoins like USDT or USDC could completely disappear in Europe.

Why is MiCA important for stablecoins?

The “Markets in Crypto-Assets Regulation” (MiCA) will soon apply to the crypto-asset market. The stated objective? To strengthen consumer confidence and stabilise the crypto-currency market in Europe. “The main provisions applicable to issuers and traders of crypto-assets […] focus on transparency, information disclosure, and authorization and monitoring of transactions,” it reads below. the European Parliament websitewho initiated this law.

MiCA has a particular focus on stablecoins. It mainly targets industry giants such as Circle (USDC) and Tether (USDT). To continue to offer their stablecoins in Europe, these operators will have to obtain a specific license, similar to that required for “banking institutions”.

As a result, Binance, Coinbase, and other major exchanges will have to adapt. They must ensure that their cryptocurrency offerings comply with these new regulations. That’s why Binance has warned its users about the disruptions to stablecoins. In a recent email to its customers, the exchange sought to reassure: “Binance will not delist these stablecoins.” […] We will implement some restrictions for EEA users, but only on certain products, and we will offer alternatives with regulated stablecoins or other crypto assets.

Why is the EU targeting stablecoins?

Why is the European Union specifically targeting stablecoins? This is an obvious response to the fiasco of Terra Luna and its stable cryptocurrency, UST. From Brussels’ point of view, the risks inherent in stablecoins are too great. In the crosshairs of the institution: opaque capital reserves, a lack of guarantees and the questionable solidity of these cryptocurrencies. The FTX case did not help to allay this distrust.

Unofficially, Brussels also pursues other objectives. Stablecoins allow users to avoid the infamous cryptocurrency tax, while still benefiting from a way to secure their cryptocurrency earnings. By remaining in stablecoins, users avoid a taxable conversion into euros, provided they want to remain in the cryptocurrency ecosystem without making a withdrawal to a traditional bank.

There are also geopolitical issues. Europe wants to maintain its sovereignty vis-à-vis the United States. Stablecoins are largely supported by American companies, which are massively absorbing capital. Finally, stable cryptocurrencies could eclipse the digital euro project.

Regulate at all costs: a counterproductive European strategy?

Some cryptocurrency players accuse the European Union of slowing down innovation. Worse, by forcing Binance to withdraw its USDT offering, investors could be forced to turn to unregulated, and therefore riskier, platforms. We know that DeFI carries more risks. Excessive regulation could also lead to the exodus of companies based in Europe. Middle East, Asia… there is no shortage of exile destinations. An argument taken up by former MP Pierre Person, who declared in 2022 that “the European Union is shooting itself in the foot”.
Recently, Tether had expressed its doubts about the MiCA law, raising the possibility of leaving Europe permanently. Circle, which issues USDC, had committed to complying with all regulatory criteria.

A legal mess that is difficult to apply

The problem is that this new European regulation on stablecoins has left little time for the players in the ecosystem to prepare. Barely a year for a major legal project. The other problem is that the texts concerning stable crypto-assets lack clarity. “There is uncertainty about how the MiCA is written, according to Faustine Fleuret, who heads ADAN, the Association for the Development of Digital Assets. We can expect some leniency on July 1st.”

In a context where Bitcoin price drops again, uncertainty over USDT or USDC is not good news for investors. Especially since the market alone today weighs 1.27 trillion dollars.

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Martin

Fascinated by the history of Bitcoin and the cypherpunk movement, I think that citizens must reinvest the field of currency. Monday but? Democratize and make visible the potential of blockchain and cryptocurrencies.

DISCLAIMER

The views, thoughts and opinions expressed in this article belong solely to the author and should not be considered investment advice. Do your own research before making any investment decisions.

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