The Markets in Crypto-Assets (MiCA) regulation is a 2020 proposed landmark licensing law of the European Commission (EC) that focuses on maintaining financial stability and protecting investors while promoting more widespread transformation in the crypto asset sector in European Union (EU) countries.
If the European Union’s Markets in Crypto-Assets (MiCA) regulation becomes law, it will be the world's first such regulation that addresses concerns about crypto investing. It will also attempt to:
- Protect crypto investors
- Maintain financial stability
- Promote widespread innovation within the industry
EU Lawmakers Pass the Bill
On Oct. 10, 2022, the EC’s Economic and Monetary Affairs Committee overwhelmingly voted (28 in favor to 1 against) to approve the first-ever such regulation, paving the way for a vote by the full European Parliament before the end of 2022. The bloc’s national governments had previously signed off on MiCA. The regulation is expected to become law in 2024.
When in effect, the law allows providers of digital wallets and other crypto services to sell their products across the EU bloc, if they register with national authorities and satisfy minimum guarantees to safeguard investors and sustain financial steadiness.
Other Elements of Digital Finance Strategy
The European crypto community largely endorses MiCA, although some have concerns over limits imposed on stablecoins, which are crypto assets pegged to fiat currencies, commodities, or financial instruments, and question whether the rules will apply to non-fungible tokens (NFTs). The MiCA bill also asks those issuing crypto to publish a crypto-asset white paper with information about their project.
“In addition to the MiCA proposal, the package contains a digital finance strategy, a Digital Operational Resilience Act (DORA)—that will cover Crypto-Asset Service Providers (CASPs)—and a proposal on distributed ledger technology (DLT) pilot regime for wholesale uses [which entered into force in June 2022],” stated CipherTrace in a paper.
What is cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
What is the European Union (EU)?
The European Union (EU) is a political and economic alliance of 27 countries. The EU promotes democratic values in its member nations and is one of the world’s most powerful trade blocs. Nineteen of the countries share the euro as their official currency.
The EU grew out of a desire to strengthen economic and political cooperation throughout the continent of Europe in the wake of World War II.
What are non-fungible tokens (NTF)?
Non-fungible tokens (NFTs) are cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can serve as a medium for commercial transactions.
The Bottom Line
MiCA will mark a milestone in the cryptocurrency market since comprehensive regulations have never been seen before. There may be more regulation on the horizon as it puts the decentralized finance (DeFi) under the microscope next. The bill could prompt other countries, such as India and the United Kingdom, which have been working on crypto regulation for a long time.