The “wild west” of crypto is slowly but surely getting what it deserves. After years of debating, European Union (EU) broke down important rules and regulations on the crypto industry, including anti money laundering (AML) rules. According to the new legislation, transfers of crypto-assets will be tracked and recognized in order to stop money laundering, terrorist funding, and other crimes.
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This is likely to be the first major regulation for the crypto world. After hours of negotiations, an agreement was reached in Brussels by the European Commission, EU lawmakers, and member states. This measure was taken one day after the three major institutions confirmed their plans to combat cryptocurrency money laundering.
Markets in Crypto-Assets Act, or MiCA, is the new law that is intended to make it more difficult for a variety of participants in the cryptocurrency market, including crypto exchanges and companies who set up stablecoins that are meant to be tied to fiat currencies like the U.S. dollar or Euro. Let’s have a look at this new rule more closely.
Stablecoins like USDT, USDC, and others will need to keep enough reserves on hand to fulfill redemption requests in the case of large-scale withdrawals under the new regulations. That is only a logical step after what happened to Terra Luna. Moreover, Stablecoins that become too big may have their daily trading volume limited to a specific amount.
If it is determined that cryptocurrency platforms do not adequately safeguard investors, endanger market integrity, or threaten financial stability, the European Securities and Markets Authority, or ESMA, will be given the authority to intervene and ban or restrict those platforms. Strong bull markets enabled the creation of many scam projects, and this measure should limit that.
Stefan Berger, the lawmaker who oversaw negotiations on behalf of the European Parliament, said:
“Today, we put 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.”
The MiCA will address the environmental issues surrounding cryptocurrencies and require businesses to disclose their energy usage as well as the environmental effects of their digital asset holdings. Crypto mining, the energy-intensive process of creating new bitcoin and other tokens, was previously proposed to be eliminated, but it was voted down in March 2022. The proposals did not include information on non-fungible tokens (NFTs). Then there’s another regulation on Crypto-assets service providers (CASPs).
Un-hosted wallets and CASPs
Similarly, regulators have decided to lessen anonymity for some crypto transactions. Authorities are concerned about using cryptocurrency assets to launder illicit proceeds and evade sanctions, especially in light of Russia’s ongoing invasion of Ukraine. As a result, cryptocurrency users who frequently trade digital currencies for privacy reasons transfer between exchanges and so-called “un-hosted wallets” owned by individuals will need to be recorded if the sum exceeds 1,000 euros.
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If a money laundering or terrorism financing inquiry is conducted, so-called CASPs will be required to give this information to the relevant authorities. Users will need to confirm that the source of the asset is not subject to restrictions or sanctions and that there are no concerns of money laundering or terrorism funding before making the crypto-assets accessible to beneficiaries.
MiCA to crypto is what GDPR is to privacy
In the EU, MiCA represents the first attempt at completely regulating digital assets. Although some crypto companies have expressed concern about some of its harsher restrictions, some industry insiders view the move as positive and think Europe might set the standard for crypto regulation. The rules are anticipated to go into effect as early as 2024, a historic move that would place the EU ahead of both the United States and the United Kingdom in enacting laws specific to the cryptocurrency sector.
After a long 13-year-old ride in the crypto market, some forms of serious regulation are finally coming. Some crypto enthusiasts may be disappointed as it invades the decentralized nature of the crypto market. However, it may be very beneficial for the industry if there are some rules and regulations so fewer people can lose money and disasters like Terra Luna can be avoided.