The Markets in Crypto-Assets Regulation (MiCA) marks a significant milestone in the European Union’s journey toward regulating the rapidly evolving crypto market. Its timeline and provisions hold immense importance for both crypto businesses and investors. As we approach crucial dates, starting with the application of stablecoin provisions from June 30, 2024, and the complete application of MiCA on December 30, 2024, the crypto landscape is undergoing a transformative phase. 

Over the next two years

MiCA’s staggered timelines and transitional periods, extending up to June 30, 2026, imply a period of fragmented implementation across the EU and European Economic Area (EEA). Jurisdictions such as Ireland (12 VASPs), Spain (96 VASPs), and Germany (12 VASPs) will grant a 12-month transitional period. In contrast, other jurisdictions will offer more extended periods, such as France (107 VASPs) with 18 months, while Lithuania (588 VASPs) will likely only grant five months. This transitional phase will prompt market consolidation as not all existing service providers will secure MiCA licenses. Many will look to capitalize on this interim period before winding down operations.

The race among EU/EEA jurisdictions to become the primary hub for crypto activities intensifies, with jurisdictions like France, Malta, and Ireland competing to take the top spot. However, regulator readiness and compliance for crypto-asset businesses pose significant challenges. Regulators are facing an adjustment period to upskill their staff to process MiCA applications, particularly in jurisdictions with high applicant volumes. The complexity of various business models, encompassing numerous products unfamiliar to regulators, exacerbates this challenge. The general lack of expertise to authorize and supervise this sector requires substantial training efforts.

Challenges for crypto businesses

MiCA, coupled with the vast array of related Level-2 measures (many of which still need to be finalized) and other applicable EU instruments such as the anti-money laundering laws, the Digital Operational Resilience Act (DORA), and the Electronic Money Directive (EMD), create a complex regulatory framework. Understanding what provisions apply to each entity type and what documentation needs to be implemented will be challenging for some.

The delisting of crypto-assets, particularly stablecoins, from EU exchanges due to their issuers’ failure to obtain their licenses on time will pose considerable hurdles and limit the availability of certain assets for consumers.

Adapting to MiCA will strain many entities and require substantial investments in technological infrastructure. The Travel Rule, a requirement in which information must be shared between VASPs with each crypto transaction, also comes into effect at the same time as MiCA. The Travel Rule mandates that CASPs transfer a substantial amount of information about the originator. This includes their address, personal identification number, and customer identification number. In rare cases, it may even require the disclosure of the originator’s date and place of birth. This adds another layer of complexity, further highlighting the need for harmonization within the EU and solutions to comply with the Travel Rule that are interoperable and enable secure data sharing while preserving user privacy.

Key crypto market outcomes

Despite the challenges, MiCA instils confidence in EU entities due to heightened regulatory oversight, the promotion of investor protection and attracting mainstream institutional participation. Enhanced consumer protection measures mitigate risks such as fraud and hacking, fostering trust among retail clients.

MiCA’s reporting requirements will result in regulators across the EU possessing more data, empowering them to monitor market activities effectively. The ability to freely passport activities across the EU will facilitate cross-border operations and reduce regulatory fragmentation while expanding market reach.

MiCA’s prescriptive nature and all-encompassing regime set a precedent for global regulatory frameworks. Other jurisdictions are already observing and may replicate some of MiCA’s provisions and its approach, contributing to regulatory harmonization on a worldwide scale. However, concerns remain as to whether it will stifle growth and innovation and whether businesses will look to relocate to more permissive and less restrictive jurisdictions.

Steps after MiCA

MiCA’s gaps in regulating emerging areas like true defi (the provision of financial services or issuance of financial assets without identifiable intermediaries and with no single point of failure), lending, and NFTs necessitate ongoing policy discussions and further regulatory measures. Reports on these aspects will inform future regulatory developments, potentially leading to a second iteration of  MiCA in at least the next four to five years or supplementary measures.

MiCA signals a new era of regulation in the crypto market, aiming to balance innovation with investor protection and market integrity. While challenges persist, MiCA lays the groundwork for a more transparent, secure, and inclusive crypto framework in the EU and beyond. As the crypto landscape continues to evolve, regulatory regimes must adapt to emerging trends and technologies, ensuring sustainable growth and fostering investor confidence.

Ernest Lima

Ernest Lima is one of the founding Partners at XReg Consulting and a qualified lawyer with over 17 years of experience working in financial services regulation. As XReg’s legal and regulatory policy lead, he is highly experienced in the design, development, and implementation of crypto legislative frameworks that meet both global and local policy objectives. At XReg, Ernest leverages in-house expertise on Europe’s Markets in Crypto-Assets (MiCA) Regulation to advise European clients or those looking to enter the European market. He also leads engagement with European public sector officials and National Competent Authorities in their transition to MiCA compliance. Ernest has also spoken at industry conferences and trained international regulatory authorities on Europe’s MiCA regulation and how it will shape the future of crypto’s international regulatory landscape. He also sits on the Financial Markets Law Committee to address issues arising from using cryptoassets and DLT.

Stock trading and investment are never meant for the faint of heart, but one can certainly ease into them without losing their head and hard-earned money.

Blue-chip fiat investing is established, is typically easy to understand, and has many avenues where traders can ask for help. It might be slightly boring and slow to grow if only investing in reliable, “sure thing” stocks, but they’re still relatively approachable.

Derivatives

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Now, imagine throwing crypto into the mix here.

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Simply put, crypto derivatives are frightening to the average trader. But is there any way to make it less intimidating?

Fiat investment services have only become more accessible with the rise of mobile-first products that use simple and understandable language to guide newcomers. Any sensible financial advisor at a retail bank will also likely advise clients to store funds in an investment account rather than a traditional savings account, solidifying legitimacy that gives people a sense of security.

Plenty of blockchain-based services attempt the same thing, but the success has been middling.

Any way you slice it, crypto will always have a more daunting learning curve than fiat currencies due to how the technology and market function. And in most cases, someone interested in crypto can’t simply walk into a bank and get sound advice on derivatives trading strategies.

Making crypto derivatives more approachable requires a clear push in both education and creating services that don’t require a doctorate to operate.

Projects such as Thalex, for instance, have made this their mandate. Thalex is an exchange specializing in crypto derivatives, namely in perpetuals, futures, and options, but its no-frills approach serves its mission to remove the friction from trade ideation to execution and to empower traders by offering tools that help even out the playing field.

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Futures and options aren’t an impossible concept to grasp, but the unpredictability and lack of education on how they work in crypto make investors less inclined to explore them. To overcome this fear of crypto derivatives from fiat and crypto traders alike, there has to be a way to soften the landing. Not only will this help make the pros and cons of derivatives trading clearer, but also help create a roadmap that traders can feasibly follow.