How new EU regulations will affect the global cryptocurrency market

From the beginning of July, cryptocurrency exchanges and stablecoin issuers will operate in the EU under the terms of the MiCA Act.

The entry into force of the Markets in Crypto-Assets Act (MiCA) on June 30 marks significant changes for the EU cryptocurrency industry. One of the key provisions of MiCA is the regulation of stablecoins, as well as rules for a wide range of crypto-assets and exchange platforms.

What MiCA says

MiCA is a regulatory framework that clarifies and uniformly regulates the cryptocurrency market. It defines the classification of digital assets and specifies the rights and areas of responsibility for their implementation.

Last April, members of the European Parliament voted in favor of the MiCA bill regulating cryptocurrencies. The EU has become one of the first jurisdictions in the world to introduce comprehensive regulations on crypto assets.

Companies will be required to provide full disclosure to customers, present a public business model, establish an effective governance system, including risk management, register with the European Banking Authority (EBA), establish a redemption mechanism and have sufficient reserves.

Additionally, issuers of asset-based tokens (ART) and e-money tokens (EMT) must disclose sustainability information from June 30, and cryptocurrency service providers must start requiring disclosure requirements by the end of the year.

ART issuers (other than credit institutions) may continue to operate if tokens were issued before June 30 until authorization is granted or denied under MiCA, provided they apply for authorization by July 30.

Entities that fail to comply with MiCA provisions may be fined and banned from operating within the European Union.

What restrictions have cryptocurrency companies introduced?

Due to the introduction of MiCA regulations in the EU, some cryptocurrency companies have started to restrict the use of stablecoins.

In March, OKX suspended trading in the largest stablecoin, Tether (USDT), for users located in the European Union.

In early June, Binance announced that it would restrict access to unregulated stablecoins for customers from the European Union. Binance will also limit the number of services that can include unregulated stablecoins. The copytrading service and participation in the Launchpad and Launchpool programs will be completely unavailable to customers of European exchanges.

Cryptocurrency exchange Bitstamp said it will delist EURT, the euro-pegged stablecoin Tether, as well as other stablecoins that do not comply with new EU regulations on crypto assets by June 30.

Also, European company Lugh announced that it will stop issuing its stablecoin EURL before the MiCA regulation comes into force.

The State of the Stablecoin Market

According to CoinGecko, in 2023 the EURT stablecoin rapidly lost popularity in the European cryptocurrency community. By October last year, crypto-asset capitalization had dropped almost tenfold from its peak in 2022 — from $231 million to $32 million.

EURT is the second largest stablecoin pegged to the euro in terms of capitalization. Compared to USDT from the same Tether, the volume of EURT in circulation is small – only 32.1 million coins as of June 26.

According to a report by analytics firm Kaiko, euro reserve-backed stablecoins account for just 1.1% of the total trading volume of fiat-backed stablecoins.

The study also shows that the majority (90%) of stablecoin transactions take place in US dollar-backed assets. Only 10% of stablecoins are backed by reserves in other currencies and real assets, including gold.

The weekly trading volume of dollar stablecoins like USDT exceeds $270 billion. Meanwhile, the total trading volume of euro stablecoins EURT, EURS, EURCV, AEUR and the like is only around $40 million per week. However, analysts expect growth in this segment as European regulators pressure exchanges to withdraw dollar assets from circulation.

What the experts say

The MartyParty analyst generally expects an explosion of stablecoins after the implementation of MiCA. He believes that European Union banks, institutions and stablecoin issuers will start minting trillions of euro-backed stablecoins in July.

Stable coin explosion coming soon

The MiCA provisions regarding stablecoins will become effective on June 30, 2024, with the entire regulation coming into effect on December 31, 2024.

Banks, institutions and existing EU stablecoin issuers will start minting trillions of euro-secured banknotes… pic.twitter.com/jaxcFP7dFa

— MartyParty (@martypartymusic) June 22, 2024

Alexander Ray, CEO and co-founder of Albus Protocol, notes that the new regulations will require all organizations involved in business transactions using asset-linked tokens to implement multiple regulatory measures such as KYC and AML protocols.

He said that the implementation of KYC and AML protocols will definitely increase the operational costs of crypto companies and users will ultimately pay for it.

Sven Mohle, Managing Director of BitGo Europe GmbH, added that by adopting MiCA, Europe is helping to set the standard for promoting international standards on rules and regulations related to combating money laundering and terrorist financing. However, users are unlikely to see fully harmonized international rules across the board.