Regulation of Cryptocurrencies in the EU

As Bitcoin and other cryptocurrencies are not covered by traditional financial legislation, many governments are trying to get some control over this ‚free‘ payment method, which is somehow hard to do.

Bitcoin’s main characteristic is that of decentralisation, where government or institutional control is not possible. So, when governments are trying to regulate Bitcoin, they go against its core value, and Bitcoin reacts by downward price fluctuations. Governments have also often scrapped their draft legislation and basically started again in their quest to create applicable rules to crypto.

As we are now post the Bitcoin-ban in China, mid-war in the Ukraine, and the pre-Paris-Climate Agreement deadline, where do we stand with the regulation of crypto in the EU?

The EU’s aim is to create an innovation-friendly regulatory framework for digital financial services, including cryptocurrencies,  that allows the application of new technologies, but guards against money laundering and terrorism financing.

In March 2022, the European Parliament’s MPs agreed on the Markets in Crypto Assets (MiCA) draft rules that regulate the supervision, consumer protection and environmental sustainability of crypto assets. This framework for digital assets will regulate cryptocurrencies in the EU from 2025. The four main objectives of the bill are

• the creation of a sound legal legal framework for crypto assets,
• the support of innovation and fair competition,
• consumer and investor protection, and the ensurance of market integrity
• financial stability and monetary policy for the adoption of global stablecoins.

MiCA will regulate and harmonise activities across the EU, such as the issue of crypto-assets, the provision of wallets, and exchange and trading platforms. Governance and operational requirements aim at reducing fraud and theft of crypto-assets.

Further, the EU decided to implement new rules that make it compulsory for all crypto transactions to provide information about the involved parties, which means that anonymity, one of the original main characteristcs of Bitcoin transactions, will be outlawed in the EU.

Additionally to the regulation of crypto assets, the bill also issues specific requirements for e-money tokens and asset-referenced tokens in a bid to cover the whole range of virtual currencies.

Regarding the EU’s environmental goals of moving towards net-zero emissions, Parliament asked the Commission to present a legislative proposal on crypto-mining activities that contribute substantially to climate change by 1 January 2025. The proposal is to include the EU taxonomy classification system that lists environmentally sustainable economic activites.

References:

• Press Service, Directorate General for Communication, European Parliament - Spokesperson: Jaume Duch Guillot, Press switchboard number (32-2) 28 33000
• www.protocol.com/bulletins/eu-mica-vote-bitcoin-ban
• https://www.europarl.europa.eu/news/en/press-room/20220309IPR25162/cryptocurrencies-in-the-eu-new-rules-to-boost-benefits-and-curb-threats
• https://www.protocol.com/newsletters/protocol-fintech/crypto-regulatory-storm?rebelltitem=1#rebelltitem1