MiCA and its disruption to the wild wild west

The European Union (EU) is currently working on a new set of regulations, stating that it would create a more transparent and secure environment for investors. The arrival of MiCA would inevitably anger many investors, who believe that the regulation is the violation of the DeFi nature of crypto. But there are also others like Binance CEO Changpeng welcoming the change. So what is all this buzz about?

Killing all of Europe's problems with just one stone?

But why is there a need for this set of regulations in the first place?

First, this regulation might be created in the name of unity. Just like its motto states "United in diversity", the European Union has always been a bit of a stickler for unity. Thus, it won't come as a surprise to you that the reason behind this regulation is to create a uniformity of rules among the European Union countries. Different countries in the EU might have different rules, and this might cause a lot of confusion for companies that want to do business in more than one EU country. Thus, the MiCA will thus help to streamline the process by creating one set of rules that everyone would have to abide by.

The second reason why these regulations were implemented was to curb money laundering in the EU. While there are already many laws that are put in place, we continue to see cases after cases of money laundering in European countries. Experts have attributed this persistent issue of corruption to two root reasons: First, many of these rules are not properly regulated; Secondly, some of these rules might have loopholes, and they do not suffice in properly addressing the issue of money laundering.

The third and maybe the most important reason why the EU is pushing for this regulation is to curb the rise of the US-backed stablecoin that is causing the value of Euros to depreciation. Research has found that nearly 90% of crypto transactions are executed using USD-backed stablecoins, with an average weekly volume of $270 Billion, 70 times higher than that of that of their European counterparts. So the MiCA could just be the saving grace for the European backed stable coin, and for them to catch up with the USD-backed stable coin

What does this regulation entail

All and all, the MiCA regulation hopes to achieve these three main objectives:

Greater transparency- Ensures that the government knows where people's crypto are stored and how they are used.

Better governance - To set better rules and procedures for making decisions about how crypto projects in the EU are run. This would cover grounds such as crypto decentralisation, user information and KYC.

Provide better custody - Provide better mechanism for the storage and safeguarding crypto assets. This would include features such as hot wallets, cold storage and insurance.

Preparing for the arrival of MiCA

With the MiCA regulations to be fully implemented at the end of 2024, each of these EU countries need to create local laws that meet with the wider EU rules. Of course, some aspects of the regulations would be set in stone, while other parts of the regulation are open for the individual countries to decide on their own.

Investors are now very interested in knowing the different regulations in each country so as to decide which country would be the best to operate in. Let's look at some case studies.

France: France has created their laws quite earlier on, so they would most likely find it easier to transition into the change. France already has put its MiCA authority in place, with its AMF and ACPR.

Netherland: Netherlands, on the other hand, have decided to do the regulation through their central bank.

Denmark, Austria and Italy: These countries would still have to approve legislation to align with MiCA.

Heated debates among experts

Of course, the announcement of the MiCA has triggered many experts who have expressed their fury that the unnecessary overreach of the MiCA might stifle the growth and innovation of the crypto industry. With more rules and regulations surrounding this industry, it might deter startups and smaller firms from entering into the market. Furthermore, many have expressed that the MiCA is a clear violation of the principle of DeFi that is so commonly associated with the crypto world. The purpose of a decentralised finance entity is to create a more organic market that is free from the intervention of regulators, and the MiCA seems to be doing the opposite.

But surprisingly, there are also other people who outwardly declare their support of the regulation, saying that it is the much needed regulation to control the volatility of the crypto market. One of these supportive voices comes from the French finance minister, Bruno Le Maire. He said that "Recent developments on this quickly evolving sector have confirmed the urgent need for an EU-wide regulation".

What impact will this regulation have on the crypto industry?

So what does this mean for the crypto world and how would the MiCA policy affect you as a fellow investor? Is the MiCA law really as restrictive and binding as some would claim it to be? Here are some things you need to know.

1. The Mica bill affects the trading volume, issuance and utility of your stablecoins. The EU has set the bill caps stable coin payments transactions to 200 million euros per day, which is a very limited amount. So do not be surprised if you see a significant reduction in the volume of stablecoin payments transactions. You should also note that the law only applies to stable coins in the context of payment, so it does not affect the usage of stable coins in all the other contexts.

2. The bill does not apply to blockchains or coins like Bitcoin, Ethereum,and Cardano.

3. The bill provides specific regulations for asset-referenced token

4. The specifications that the bill creates for NFT. This stops sellers from selling NFTs like financial products, which have been a breeding ground for fraud.

5. The MiCA bill is quite friendly to DeFi and doesn't hope to regulate it. Contrary to popular opinions, the MiCA actually doesn't hope to regulate the crypto market. The only purpose of the law is to make sure that crypto asset providers comply with the consumer protection practices to protect the consumer against cyber attacks, theft, or malfunctions. It is also important to note that the EU isn't Europe, so if you are a european country outside of the EU, then you are not confined by this regulation.