In 2024, the crypto industry will face a significant step, which is the adoption of the MiCA (Markets in Crypto-Assets) regulation package by the EU. On one hand, establishing rules for the crypto community is positive news as it eliminates legal uncertainty and makes crypto more attractive to investors. On the other hand, the introduction of these measures has already triggered market transformations, one of the "victims" being the most capitalised stablecoin, Tether (USDT).
The itez editorial team decided to find out whether the crypto community should fear the consequences of the full implementation of MiCA. Let’s discover regulation package pitfalls that you need to be aware of.
What is MiCA
MiCA (Markets in Crypto-Assets) is a legislative act of the European Union aimed at regulating the crypto-asset market. The regulation, which includes strict requirements for customer identification (KYC), was developed by the European Commission. For the EU, MiCA is part of a broader initiative to create a regulated and safe environment for using digital financial tools.
The authors of MiCA intend to provide legal clarity for crypto projects and protect the rights of crypto investors. The unified set of rules is intended for all EU countries.
Regulating crypto assets, including stablecoins, helps prevent systemic risks, such as money laundering. For instance, the authors of the legislative act will require crypto exchanges to inform law enforcement about cryptocurrency transfers to private wallets amounting to €1000 or more.
The European Commission approved the set of rules in April 2023. From that moment, the regulation began to be gradually adopted and implemented. MiCA will come into full force by the end of 2024. By this time, all EU member states must fully adapt their national laws to meet the requirements of the package.
Although the set of rules has not yet proven its effectiveness, regulators in other countries have begun to consider the possibility of its implementation. For example, this possibility is being studied in the USA.
MiCA pitfalls
On one hand, regulatory clarity is good for the crypto market. Companies will know the steps they need to take to legalise their business in the EU. On the other hand, the new requirements could spell disaster for existing crypto projects that, for various reasons, cannot be legalised in accordance with MiCA's requirements.
A vivid example is the changes in the stablecoin market. According to MiCA rules, only issuers with an Electronic Money Institution (EMI) licence can operate in the EU. On July 1, 2024, Circle, the issuer of the second most capitalised stablecoin, USD Coin (USDC), received this licence. Representatives of the project are confident that MiCA could drive all unregulated stablecoins, such as Tether, out of the EU market.
Indirect evidence of this thesis is the position in which Tether, the most capitalised stablecoin on the market, found itself. Amid preparations for the full implementation of MiCA in the EU, members of the crypto community began washing stablecoins that do not meet the new requirements of their platforms. For example, one of the largest crypto exchanges, OKX, cut off its European users from trading pairs with Tether. Other trading platforms are also considering abandoning USDT.
Tether and USD Coin in the top 10 most capitalised cryptocurrencies. Source: CoinMarketCap
Can MiCA destroy Tether
To outline Tether's prospects in light of MiCA adoption, it is necessary to clarify the numbers involved. If the Tether team cannot quickly obtain an EMI, the issuer risks losing a large market.
There are over 30 million crypto community members in the EU. However, on a global scale, this loss does not seem critical. According to triple-a, there are 560 million crypto users worldwide, meaning the EU population represents only about 5.36% of the entire crypto community.
Moreover, not all EU citizens work through centralised exchanges (CEX), which may refuse USDT to comply with MiCA's requirements. Therefore, Tether's overall losses will not be so noticeable.
Should you fear MiCA
MiCA was created to regulate the digital asset market. So far, the initiative of the supervisory authorities does not imply a total ban on crypto – on the contrary, EU authorities want to protect the rights of crypto community members. For this, some sacrifices will have to be made, such as anonymity.
The formation of legal norms will increase the attractiveness of cryptocurrencies in the eyes of large investors, which means there is a chance that their money will flood the market.
Amid the full-scale introduction of MiCA, a market reshuffle is likely. Unregulated coins will be pushed out of the EU, offering those that meet regulatory requirements instead. For example, this is already happening with stablecoins. Tether is being replaced by the government-friendly USD Coin.
It turns out that the strengths of MiCA outweigh the difficulties the market may face amid the full adoption of the new set of rules.
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This article is not investment advice or a recommendation to purchase any specific product or service. The financial transactions mentioned in the article are not a guide to action. It’s not intended to constitute a comprehensive statement of all possible risks. You should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
