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.

Rekt Capital, a well-known crypto strategist, has issued a warning about a potential further correction for Bitcoin BTC/USD, suggesting a possible drop to $55,000.

What Happened: The analyst, who has previously accurately predicted Bitcoin’s pre-halving pullback, recently stated that the cryptocurrency could correct to much lower levels.

In a YouTube video over the weekend, Rekt Capital speculated, “What if we were going see a deepest correction in the cycle, or at least equal to the deepest correction in the cycle of 23.8%? That would see us go to $55,000.”

However, he also suggested that a deeper drawdown is unlikely at this point in the cycle, and that Bitcoin has either already hit a local bottom or is experiencing a more shallow pullback.

Also Read: Anthony Scaramucci Says Crypto Will Soar If This Presidential Candidate Wins The Election: ‘I Think We’ll See All-Time Highs For Bitcoin And Other Assets’

“Is that a possibility that we see the deepest correction not too long after already seeing the deepest correction this cycle just after the halving? That was around late April, early May. We saw a record-breaking deep correction in this cycle. We eclipsed the early 2023 pullback, and it took a year and a half for that new record to come in,” the analyst said.

“So to now talk about another record and another deep retrace occurring only a month-and-a-half later, I think that’s a little bit too farfetched. I don’t think we’re going to eclipse that retrace depth for the deepest retrace in this cycle. I think it would be either this being the bottom already or a slight additional pullback,” he added.

At the time of writing, Bitcoin was trading for $61,376.35, down by almost 5% in the last seven days. .

Why It Matters: This prediction comes in contrast to the recent forecast by former Goldman Sachs executive Raoul Pal. Pal anticipated a significant surge in Bitcoin and the overall crypto market in the fourth quarter of the presidential election year.

He stated that risk assets like Bitcoin typically experience rallies during Q4 of an election year, referring to this period as the “banana zone.” These contrasting views highlight the volatility and unpredictability of the cryptocurrency market.

Now Read: Analyst Predicts Bitcoin To Reach Groundbreaking $100,000 Milestone

Photo: Shutterstock