MiCA: A monumental framework for Digital Assets in the EU

How MiCA can revolutionize digital assets in the EU

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On April 20^th, 2023, members of the European Parliament (MEPs) voted in favor of implementing the first piece of EU legislation targeting cryptocurrency, MiCA. Considered by many to be a significant step in the industry’s history, MiCA becomes a world first pan-national regulatory framework covering crypto assets issuers as well as crypto assets service providers. MiCA is monumental, not just for crypto but for the financial system as a whole.

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MiCA’s key objectives include ensuring legal clarity, consumer and investor protection, market integrity, and financial stability while promoting innovation and addressing the challenges caused by fragmented national frameworks. Furthermore, MiCA will create a regulated and transparent offering of services by crypto exchanges and digital wallet providers and ensure that stablecoin issuers hold a sufficient reserve.

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Although various regulators are involved in the implementation of MiCA, the European Securities and Markets Authority (ESMA) will be taking the majority of responsibilities. ESMA will hold three consultations over the next 9 months, to develop regulatory technical standards and guidelines. However, some of the elements that ESMA will have to incorporate may prove to be challenging. For example, ESMA will be responsible for developing criteria to decide when a crypto-asset should be considered a financial instrument, which would fall under MiFID instead of MiCA.

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Most importantly, MiCA ensures a cohesive strategy for digital asset regulation throughout all 27 EU Member States, allowing companies authorized in one country to easily "passport" their operations into other Member States with minimal supplementary paperwork.

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Expected to be fully implemented in late 2024, the regulation establishes Europe as a desirable location within the cryptocurrency industry. With 529 votes in favor and only 29 against (with 14 abstentions), it is clear that the new crypto legislation is widely perceived as much needed across the trade bloc. The emergence of a new financial paradigm in tandem with the prolific rise of digital currencies has meant that regulation has been at the forefront of governments and associated institutions globally, and MiCA may prove to be the outline upon which other regions develop their own regulatory framework.

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MiCA vs. FINMA - Which regulation will win?

Switzerland's Government and Financial Market Supervisory Authority (FINMA) have embraced blockchain and digital assets, incorporating them into its regulatory framework with a "same risk, same rules" approach. Switzerland’s regulatory framework is considered one of the most comprehensive and mature frameworks in place worldwide. Being at the forefront of regulation, FINMA has provided transparency beloved by the decentralized community, fostering growth in various sectors within the blockchain industry. 

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Switzerland was one of the first countries to outline regulatory clarity on various topics, such as token classification and stablecoins, in 2018, positioning itself at the forefront of crypto regulation. However, the introduction of MiCA may prove to be tough competition for Switzerland, potentially drawing blockchain companies away from the neutral state. 

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Crypto Valley, and particularly Switzerland, has the largest gathering of blockchain-based companies in the general European area due to its all-encompassing system for innovators, and its strong economic, geographic, and legal position - which gives regulatory assuredness to those building on blockchain technology. However, the introduction of an EU-wide legal framework may persuade companies to look beyond the Alps, particularly those who are focused on the crypto side of blockchain. 

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According to research by Greenfield, a European crypto investment firm, Europe is developing various hotspots around the continent. A survey of founders by Greenfield found that Lisbon took the top spot as Europe’s most important crypto hub, with New York City and Berlin taking 2^nd and 3^rd place. Paris (ranked in 7^th place) was the third European city to be ranked inside the top ten.

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Switzerland’s Crypto Valley is still considered one of the most mature blockchain ecosystems globally. According to an annual assessment by CV VC, Crypto Valley continued its steady growth rate, due to the favorable regulatory environment, demonstrated by the 1135 entities located there in 2022. In addition, Crypto Valley boasts 9 blockchain unicorns, and the top 50 blockchain-focused entities hold a valuation of $185 billion. During a period of market downturn across various industries, the stable growth and diverse portfolio that Crypto Valley offers is a testament to the maturity of the region and Crypto Valley will look to maintain its position in the blockchain space.

Switzerland, renowned for its thriving digital asset industry, continues to demonstrate its global significance and influence, even as a non-EU member. The introduction of the new MiCA regulations will impact companies based in Switzerland, necessitating a thoughtful assessment of their position within the EU jurisdiction. This development presents a valuable opportunity for non-EU entities operating within the union to evaluate their standing and adapt accordingly. In addition, companies whose primary focus lies outside the world of blockchain and looking at entering the space will now have more factors to consider.

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As a whole, MiCA will provide regulatory and transparent calmness to an often destabilized industry. The collapse of various crypto projects, often due to regulatory issues rather than technology, and the market downturn demonstrated the need for greater regulation within the industry, providing clarity for consumers, businesses, and political entities. With a presence in Berlin, Lisbon, and Vaduz, here at CV Labs, we are excited to uncover the full impact of MiCA and the potential growth of the European blockchain ecosystem.

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Useful link:

EU press release regarding MiCA

EU regulatory Framework for MiCA, May 2023