MiCA Regulation: What, When, Why?

As the value of tokens rise and fall, some traders look for a safe digital haven. This desire might manifest thanks to a legislative package proposed by the EU.

Known as MiCA, we explore the following: What do traders need to know? How might this new form of legislation impact the crypto markets? Why have we encountered recent delays and when are the regulations predicted to come into effect?

Let’s take some time to sort through the fluff in order to get down to the heart of the matter.

What Exactly is MiCA?

MiCA is an abbreviation for “Markets in Crypto Assets“. This landmark legislation is meant to serve a handful of understandably practical purposes such as (1):

  • To provide greater marketplace stability
  • To protect the average investor
  • To encourage industry-wide innovation and to attract new traders

To be honest, these proposals actually make a great deal of sense when we take the recent FTX fallout into account as well as the bullish conditions that began at the turn of 2023. There’s still a bit more than initially meets the eye, so it pays to delve deeper into this framework.

Who’s Behind this Legislation?

So, how did this legislation come about? You might be interested to learn that it was first introduced as far back as 2020 (well before the downfall of FTX and the subsequent market-wide volatility). As with many EU laws, the “fine print” still needed to be clarified. This resulted in several delays until a vote of 28-1 in favor was finally ratified in October 2022.

We’ll also highlight the fact that this framework was not the result of the haggling between central banks or larger financial institutions that wanted to wanted to obtain a bigger slice of the proverbial pie. It was instead enacted by the Economic and Monetary Affairs Committee of the European Commission (EC). So, all members of the commission were entitled to an equal vote.

What Crypto Assets Will MiCA Address?

Now that we’ve obtained a basic overview of this new proposal, it is only logical to take a closer look at what assets will be impacted. From a simplified viewpoint, it is intended to cover sectors that are not currently governed by any type of existing legislation. These categories include:

  • Utility tokens
  • Asset-referenced tokens (ARTs)
  • Electronic money tokens (EMTs)

Now, some savvy traders might still be asking why such regulations would be necessary considering that the MiFID (Markets in Financial Instruments) II is already in place. The main point here is that the existing MiFID legislation was not really designed to oversee crypto transactions.

For example, some EU states might classify crypto assets as “transferrable securities” while others could prefer to define them as “financial instruments”. The problem here is that the hybrid nature of many crypto tokens can be interpreted in either way. This could lead to confusion in terms of which laws apply. MiCA has been designed to provide a bit of much-needed clarity to traders and institutions alike.

How Might this Framework Impact the Crypto Markets?

It’s first a good idea to point out that the regulations mentioned above are not likely to come into effect until sometime in 2024. Even once they’re enacted, crypto firms will be provided with an additional 18 months in order to adapt to the new digital ecosystem. So, there’s certainly no reason to think that the crypto world will be turned on its head anytime soon.

There are nonetheless a few important knock-on effects that will come to pass. Some of the “nuts and bolts” contained within this legislation include:

  • Establishing an EU-wide definition of market terms such as crypto assets, ARTs and e-money tokens (EMTs).
  • Determining which ARTs and EMTs are considered “significant” assets (based on parameters such as the total market cap and the number of transactions per day).
  • Creating national competent authorities (NCAs) that will oversee the regulations themselves on a country-by-country basis.
  • Ensuring transparency and preventing market abuse.

The bottom line is that the main intention is to provide the EU with a centralized set of rules that will be interpreted the same by every member state. This should provide the markets with a greater sense of stability. Let’s also remember that traders who are confident that they’re adequately protected will be much more likely to become involved; good news in light of recent times.

Why the Delay?

What we have seen so far makes a great deal of sense. This brings up yet another practical question. Why will we have to wait until April 2023? Were individual companies arguing over specific points? Was there pressure to make concessions from larger financial institutions? Not really.

Believe it or not, the main sticking point instead involved how to accurately translate the text itself into no fewer than 24 languages. This certainly isn’t the first time that such stumbling blocks have occurred and as the expression goes, it’s better to be safe than sorry in terms of dotting the “i’s” and crossing the “t’s”.

Are There Any Possible Shortcomings?

MiCA regulations are ultimately intended to provide the EU crypto markets with a greater degree of stability and transparency. In turn, this should help to actively promote large-scale investing. There are still some issues that might need to be ironed out in the future.

One complaint involves what types of assets this framework covers. Some feel that it will not be able to tackle new concepts such as the metaverse and how crypto-related data can be protected. However, a larger problem involves global compliance. The European Union isn’t an island. The crypto markets have become universal in nature. So, the benefits outlined above will serve little purpose unless other regions take similar steps.

A Sign of the Times

We’re all aware that the crypto markets could benefit from a bit of stability. This latest bundle of proposals intends to address many of the issues that have spooked certain investors for some time. It’ll still be interesting to see how individual traders react.

As always, the team at Crypto Lists will keep you informed of the latest MiCA news so that you can remain well ahead of the curve. Be sure to bookmark this page and to check back regularly for additional updates.

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