Crypto: MiCA Regulation Threatens Stablecoins

The MiCA law comes into effect on June 30. Too vague, too restrictive, it is controversial and worries crypto professionals. Eventually, stablecoins like USDT or USDC could disappear from Europe altogether.

Why is MiCA law important for stablecoins?

The ‘Markets in Crypto Assets Regulation’ (MiCA) will soon become applicable to the crypto assets market. Set goal? Strengthening consumer confidence and stabilizing the cryptocurrency market in Europe. “Main provisions applicable to crypto-asset issuers and traders (…) emphasis on transparency, disclosure of information, and authorisation and monitoring of transactions“can be read on the website of the European Parliament, which initiated this law.

MiCA focuses specifically on stablecoins. It mainly targets industry giants such as Circle (USDC) and Tether (USDT). To continue offering their stablecoins in Europe, these operators will need to obtain a special license, similar to that required for “banking institutions”.

The upshot: Binance, Coinbase, and other major platforms will have to adapt. They need to make sure their cryptocurrency offerings are compliant with the new regulation. That’s why Binance has warned its users about disruptions in the stablecoin market. In a recent email to its customers, the exchange tried to reassure them: “Binance will not delist these stablecoins. (…) We will implement some restrictions for EEA users, but only for certain products, and offer alternatives in the form of regulated stablecoins or other crypto assets.”

I wanted to take a moment to answer one of the more important questions about our strategy in the context of the upcoming MiCA stablecoin rules.

Please be assured that Binance will not remove any unauthorized stablecoins on-site, but will restrict their availability to EEA users only in…

— Richard Teng (@_RichardTeng) June 3, 2024

Why is the EU targeting stablecoins?

Why is the European Union targeting stable cryptocurrencies? This is an obvious response to the Terra Luna fiasco and its stablecoin, UST. From Brussels’ perspective, the inherent risk of stablecoins is too great. Targeted by institutions: opaque capital reserves, lack of guarantees and questionable soundness of such cryptocurrencies. The FTX scandal did not help alleviate this distrust.

Unofficially, Brussels also pursues other goals. Stablecoins allow users to avoid the infamous cryptocurrency tax while still enjoying a way to secure their cryptocurrency profits. By staying in stablecoins, users avoid the taxed euro conversion, provided they want to stay in the cryptocurrency ecosystem without withdrawing funds to a traditional bank.

In addition, there are geopolitical stakes. Europe wants to maintain its sovereignty over the United States. Stablecoins are largely backed by American companies, which are huge capital sinks. Finally, stablecoins could overshadow the digital euro project.

Regulation at all costs: a counterproductive European strategy?

Some cryptocurrency players accuse the European Union of hindering innovation. Worse still, by forcing Binance to withdraw its USDT offering, investors may be forced to turn to unregulated and therefore riskier platforms. It is known that DeFI carries higher risks. Excessive regulation may also lead to an exodus of companies based in Europe. The Middle East, Asia… there is no shortage of places in exile. This argument was repeated by former deputy Pierre Person, who declared it already in 2022 ““The European Union is shooting itself in the foot”.
Tether recently expressed concerns about MiCA, suggesting it could permanently leave Europe. Meanwhile, USDC issuer Circle has pledged to comply with all regulatory criteria.

A legal mess that is difficult to implement

The problem is that the new European stablecoin regulations have left ecosystem players with little time to prepare. Just one year for a huge legal undertaking. Another problem is that the texts on stablecoins are not clear. “There is uncertainty about how MiCA is prepared– says Faustine Fleuret, head of ADAN, the Association for the Development of Digital Resources. “We can expect some leniency on July 1st“.

In the context of Bitcoin’s renewed decline, uncertainty about USDT or USDC is not good news for investors. Especially since today’s market alone weighs in at $1.27 trillion.

RESERVATION

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