As the European Commission’s proposed Regulation on Markets in Crypto Assets (MiCA) is advancing through its first readings in the European Council and the European Parliament, a lawyer warns that it could make it more difficult for small players to enter the European Union’s crypto market. Other points of concern are related to the proposed requirement on regulatory authorization for stablecoins and the prohibition of interest on fiat-pegged stablecoins. Also, there’s the ‘Elon Musk’ clause that prohibits manipulations by “market influencers.”
The EU document was first leaked last September, providing a glimpse behind Brussels’ plans to regulate cryptoassets, in particular fiat-pegged stablecoins, and possibly making the bloc the first major jurisdiction to regulate this asset class. Since then, more details on these plans have emerged, stirring further controversy among industry observers.
“The regulation makes it a legal obligation for crypto projects to issue a white paper and submit it to the regulatory authorities, although the submission will be merely declaratory and the regulatory authorities do not enjoy the power to authorize or reject crypto projects, other than stablecoins,” Firat Cengiz, senior lecturer in law at the University of Liverpool, wrote in a recent analysis.
Still, the regulation creates “a regulatory and legal hurdle for the launch of crypto projects by, for instance, requiring them to be established as a legal entity in one of the member states,” the author said, stressing that all these new requirements would make it more difficult for small players to enter the market.
Meanwhile, the regulation’s proposed ‘Elon Musk’ clause is another feature that could spur controversies.
“The so-called ‘market influencers’ might refrain from utilizing social or conventional media to cause a decrease or increase in the price of cryptocurrencies once the regulation comes into force. The regulation prohibits such market manipulations which could be punishable with criminal remedies depending on the applicable national law,” Cengiz said.
The clause also forbids the acquisition of a dominant position in crypto markets, “which is interesting considering EU competition rules prohibit the abuse of dominant position, rather than its existence or acquisition,” the researcher added.
Cengiz highlighted that, when the regulation comes into force, the existing stablecoins will have to seek authorization from the regulatory authorities to enable their trade in the EU.
Other aspects of the regulation related to fiat-pegged stablecoins, such as tether (USDT) and USD coin (USDC), in particular the prohibition of interest, “constitute an undue intrusion into financial autonomy,” Cengiz said. And while she argued that, should they become adopted on a mass scale, stablecoins have the potential to “jeopardize monetary institutions’ ability to regulate liquidity at the expense of monetary stability,” the author stressed that is very unlikely to happen soon.
According to the researcher, with the interest ban, the EU legislator is “arguably aiming to disincentivize the investment of crypto profits in stablecoins, and consequently to protect the interests of the European banking sector.” Furthermore, this protects the interests of national tax authorities, she said, “who will find it substantially easier to monitor crypto profits if they are turned into fiat money rather than kept in stablecoins.”
“There is no explanation in the regulation as to why this intrusion to financial autonomy is necessary. This prohibition will deprive European citizens of an attractive investment option, particularly considering that financial stimuli instruments adopted to limit the economic impact of lockdowns are expected to result in historically high inflation rates,” Cengiz concluded, adding that “the regulation overregulates stablecoins”.
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