The European Union Finalizes Regulations To Curb “Wild West” State Of The Crypto Market

[TL; DR]

The Wild west state of the crypto market refers to the unregulated and lawless nature of the crypto ecosystem.

The European Union has promulgated the Market in Crypto Assets (MiCA) regulation to check and control the excesses of the crypto market.

MiCA is Europe's first primary comprehensive regulation for digital assets and other related protocols.

The regulation highlights the deployment of cryptocurrency in financial crimes regarding money laundering.

MiCA wants stablecoins to maintain reserves that will meet redemption requests in the case of mass sell-offs.

Cryptocurrency platforms that evade legislation, disobey rules, and compromise market integrity should be sanctioned by the European Securities and Markets Authority (ESMA).

The regulation also covers the energy consumption of crypto activities (mining) and their environmental impact.

The promulgation of MiCA will decisively curb the excesses of the crypto market, including the platforms and stakeholders.


Keywords: Regulations, European union, crypto, control, MiCA, law, cryptocurrency, market.


[Full Article]


The decentralized nature of the crypto market makes it accessible to all and free from government control. Interestingly, the government gradually monitors and regulates what seems to be the most significant leverage of cryptocurrency over other financial assets (fiat, stocks) is gradually being monitored and regulated by the government.

Today, the European Union is on our radar. This international organization is introducing several clauses and conditions to curtail the excesses of the crypto market. The law and regulation are expected to be adopted by all EU member nations.

In this article, we shall examine the existing laws and the new amendments to cover and curb the “wild west” state of the crypto market alongside how these laws will strengthen or weaken the cryptocurrency ecosystem in Europe.

Let's begin!


The “Wild West” Nature Of Cryptocurrency

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Wild West refers to a situation without laws, controls, or regulations. The term “Wild West” dates back to the 19th century when Cowboys and Indians (Native Americans) fought each other. Instead of reaching a consensus and coexisting, the Cowboys always resorted to violence without government intervention or control.

Today, the term “Wild West” is no longer used for the Cowboys and Indians imbroglio; it is used to describe a situation or happening with little or no regulations, control, or the law. This is the word the European Union uses to describe the present state of the Crypto market.

Research shows that there are about 4,000 cryptocurrencies in circulation. The entry requirement to become a blockchain protocol or crypto token developer is minimal.

Athan Slotkin, a cryptocurrency expert and entrepreneur said, “Right now, we are at the point where it is straightforward for anyone to create a currency in five minutes.” Since there is no regulatory body or agency to keep track of and control the launch of crypto tokens, the implication is that there will continue to be a large number of fake issuances.

Similarly, initial coin offerings (ICOs) are flooding the blockchain ecosystem. They seek capital from investors based on hype, and after a while, they will “blow up.” For instance, Dogecoin was believed to have started as a joke.

These, alongside other issues, have made experts describe the cryptocurrency ecosystem as a modern-day “wild west” even though it has numerous benefits.

In what is considered a giant step, the European Union seeks to introduce regulations and curb this modern-day version of the “Wild West” state of the crypto market. This led to the comprehensive review and the amendment of the “Markets in Crypto-Assets (MiCA) law.


The Markets in Crypto-Assets (MiCA) law

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The Markets in Crypto Assets law (MiCA) is the first significant comprehensive regulation for digital assets in Europe. Stefan Berger, a European parliamentarian, said, “the document would put an order in the wild west of crypto assets.” This statement signifies that part of the measures to tackle the decentralized ecosystem and bring about significant control is the promulgation of the MiCA law.

The Markets in Crypto Assets law (MiCA) highlights the use of crypto assets in financial crimes with particular reference to money laundering. Three prominent European Union institutions deliberated and finalized the measures to tackle money laundering in the crypto market to agree on this part of the regulation.

Another part of the MiCA law that is expected to curb the "wild west" state of the crypto ecosystem is the regulation of stablecoins. The European Union wants the stablecoins such as USDC and Tether to maintain reserves that will meet redemption requests in the event of mass sell-offs. The MiCA regulation states that other large stablecoins will be limited to 200 million Euros in transactions per day.

The Secretary General of Blockchain for Europe, Robert Kopitsch, said: “The European Union is not happy about stablecoins generally.” This comes shortly after the collapse of TerraUSD, the stablecoin pegged to the US dollar.

It was a fatal crash that blew away millions of US dollars from the crypto market and caused a substantial loss of investments. The European Union policymakers fear that digital tokens backed by existing assets threaten sovereign currencies like the US dollar and Euro.

Similarly, the European Securities and Markets Authority (ESMA) is a regulatory agency that the European Union has saddled with the responsibility of banning and putting restrictions on crypto platforms. Cryptocurrency platforms that dodge the various legislations that fail to abide by rules and threaten market integrity or financial stability will be sanctioned accordingly by the European Securities and Markets Authority (ESMA).

After the draft and presentation of the Markets in Crypto Assets (MiCA) law, Stefan Berger said, “Today, we put an order in the Wild West of crypto assets and set clear rules for a harmonized market that will provide legal certainty for crypto asset issuers, guarantee equal rights for service providers, and ensure high standards for consumers and investors.”

Furthermore, the Markets in Crypto Asset (MiCA) regulation covers the energy consumption of crypto activities (mining) and the environmental impact. The rule strictly mandates firms and mining facilities to disclose their energy consumption and the effects of their operation on the environment.

Crypto mining and other related activities are energy intensive; creating new blocks or units of token in blockchain consumes significant power. The regulation, therefore, seeks to control the energy consumption of mining activities without affecting energy distribution to other sectors and protect the environment from the adverse effects of mining activities.


Conclusion

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Paolo Ardiono, the Chief Technology Officer of Tether, said, “MiCA is focused on driving crypto innovation and its adoption in the European region.”

The regulation is not geared toward killing crypto activities or restricting investors from participating in the cryptocurrency ecosystem. However, it is to exercise high control and ensure that the “wild west” nature is curbed before the market explodes.






Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute investment suggestions.

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