MiCA is live: How new EU regulation will affect the global crypto market

From the beginning of July, crypto exchanges and stablecoin issuers will operate in the EU according to the rules provided for by the MiCA law.

The entry into force of the Markets in Crypto-Assets (MiCA) law on June 30 means significant changes for the cryptocurrency industry in the EU. One of MiCA’s key provisions is regulating 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 digital asset classification and specifies laws and areas of responsibility for their implementation.

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

Companies will have 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 buyback mechanism, and have sufficient reserves.

In addition, issuers of asset-related tokens (ART) and electronic money tokens (EMT) must disclose sustainability information from June 30, and crypto service providers must begin asking for 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 they are granted or denied authorization under the MiCA, provided they apply for permission until July 30.

Entities not complying with MiCA may be fined and barred from operating in the European Union.

What restrictions have crypto companies introduced?

Due to the introduction of MiCA legislation in the EU, some crypto firms have begun restricting the use of stablecoins.

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

In early June, the Binance exchange announced that it would limit access to unregulated stablecoins for customers from the European Union. Binance will also limit the number of services that may involve unregulated stablecoins. The copytrading service and participation in the Launchpad and Launchpool programs will be entirely unavailable for European exchange clients.

Crypto exchange Bitstamp said it will delist the EURT, the euro-pegged Tether’s stablecoin, and other stablecoins that do not comply with new EU crypto asset laws by June 30. 

Also, the European company Lugh announced that it would cease issuing its EURL stablecoin before the MiCA regulation entered into force.

State of the Stablecoin Market

According to CoinGecko, throughout 2023, the stablecoin EURT rapidly lost its popularity in the European crypto community. By October last year, the crypto asset’s capitalization fell almost tenfold compared to its peak in 2022—from $231 million to $32 million.

EURT is the second-largest stablecoin pegged to the euro by capitalization. Compared with USDT from the same Tether, EURT’s volume in circulation is small—only 32.1 million coins as of June 26.

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

The study also shows that most (90%) of stablecoin transactions are in U.S. 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 such as USDT exceeds $270 billion. Meanwhile, the total turnover of euro stablecoins EURT, EURS, EURCV, AEUR, and the like is only about $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

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

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

He said that implementing KYC and AML protocols will definitely increase crypto companies’ operating costs, and users will ultimately pay for it.

Sven Mohle, managing director of BitGo Europe GmbH, added that with the adoption of MiCA, Europe is helping to set the bar for promoting international standards regarding rules and regulations related to combating money laundering and the financing of terrorism. However, it is unlikely that users will see fully standardized international rules across the board.