This is a landmark piece of legislation on cryptocurrency and introduces new rules for the industry across the EU. The EU Parliament approved the rules by an overwhelming majority 517-38 and the regulations cover the issuing and trading of cryptoassets.

Risks for consumers, companies and markets

The aim of the new regulations is to address many risks posed by crypto-assets. Currently, when dealing with crypto-assets, people are not covered by EU consumer protection rules. Moreover, they are often not well informed about the risks, which could mean they lose money. The widespread use of crypto-assets without regulation could drive financial instability, market manipulation and financial crime. As transactions are largely anonymous, cryptocurrencies are widely used for criminal activities. In the wake of the Ukraine war, EU countries limited trade with crypto-assets for use in Russia or with a Russian entity.

Environmental impact

The technology uses huge quantities of electricity, resulting in a high environmental footprint. According to estimates, the energy consumption of bitcoin equals that of a small country.

The new rules also cover the tracing transfers of cryptoassets like bitcoins and electronic money tokens. In addition, service providers will require to reveal details of their energy consumption.

Preventing criminal activity

In April 2023, Parliament also endorsed EU rules that allow the tracing and identification of transfers of crypto-assets, to prevent their use in money laundering, terrorist financing and other crimes. The new law also allows the blocking of suspicious transactions. The rules cover crypto-asset transactions above €1,000.

Antoni Trenchev, CEO & co-founder of crypto platform Nexo, told EPI: “”Digital assets have long needed a regulatory framework that ensures a level-playing field and provides vital investor protection. With MiCA’s approval by the European Parliament, the crypto industry has finally had this affirmation.

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“MiCA’s focus on enhancing consumer and investor protection and promoting innovation is commendable. The establishment of harmonised rules and legal certainty for crypto-assets will provide a much-needed sense of security for investors, which will in turn, lead to wider adoption and increased trust in the industry. The benefits of MiCA’s regulation will be felt in the long term, with a larger client base and increased stability for the industry.

“We believe that MiCA makes Europe fit for the digital age and will foster innovation and fair competition in the industry, leading to increased consumer and investor protection and overall financial stability”.

EU crypto regulation: a platform for future innovation

Alisa DiCaprio, Chief Economist at R3, added: “Smart regulation for crypto like MiCA is critical in providing the required guidelines on how the underlying distributed ledger technology for these assets is applied. This will serve as a platform for future innovation which is vital as global competition across technology and financial services climbs.

“Europe is taking a major stride forward in positioning itself as a leader in digital finance innovation – also highlighted in the recent launch of its DLT Pilot Regime. Regulatory and legal certainty provide the core foundations for any emerging technology to be applied successfully, so the fact that the EU is moving first to lay these foundations will undoubtedly make it an attractive destination for more companies in the space to set up and invest in. It would be a surprise if other jurisdictions like the UK and the US aren’t quick to follow suit and further accelerate their crypto regulatory efforts.”

Bradley Duke, co-CEO at ETC Group, commented:

“At ETC Group, we applaud the approval of MiCA by the European Parliament. We have seen that when individual countries in the EU put in place a cohesive regulatory framework for companies working with digital assets, it encourages growth, innovation and job creation through the certainty and stability that sensible regulation brings. This also translates into far greater investor comfort knowing that their regulator is engaging with the asset class in a positive way and is implementing protections for their benefit.

Massive boost for digital assets sector

“The fact that a framework for investor protection and stability within digital assets will soon be in place across the EU is a massive boost for the digital assets sector within Europe. This contrast starkly to the situation in the US where the SEC has taken an openly hostile stance against companies trying to operate legitimately within the space while simultaneously doing next to nothing to actually put in place a functional regulatory framework. The opportunity for Europe to now become the world’s digital assets hub is very clear.”