EU regulation would give cryptocurrency credibility but impinge on privacy and decentralization.
New European Union rules for cryptocurrencies, likely to be approved by the European Parliament on Monday, may support a stable environment for investors but at the cost of alienating fans of privacy and decentralization.
The Markets in Crypto-Assets (MiCA) regulation was approved by the European Council on Oct. 5. The council comprises the heads of EU states or governments, while the parliament is an elected legislature.
From an investor protection angle, the package—which the Council said in June had been preliminarily agreed to by the parliament—will make providers of crypto assets responsible for protecting consumer wallets. The providers, which include exchanges and custodians, will be liable if they lose investor assets. This is no small requirement, considering the number of hacks exchanges and other crypto firms have experienced in the last few years. Binance, the world’s largest crypto exchange, reported that $100 million was stolen on Oct. 6, and according to Compritech’s “Crypto Heist Tracker” more than $5 billion has been swiped from crypto firms in the last two years alone.
Separate legislation would require wallet providers to report information on payers and payees in crypto transfers of any size, making them subject to what is known as the Travel Rule.
“No minimum thresholds for transactions to which the Travel Rule will apply as well as the rule’s application to interactions with self-hosted wallets will undoubtedly be seen as tantamount to an invasion of financial privacy by the most hard-line crypto enthusiasts,” Anto Paroian, CEO of the ARK36 cryptocurrency hedge fund, told Forbes in an emailed statement.
Stablecoins will be subject to strict rules, including supervision by the European Banking Authority and a requirement that issuers have a presence in the EU. This is likely a reaction to the collapse of the Terra LUNA3 stablecoin earlier this year, Bradley Duke, co-CEO of ETC Group, a packager of digital exchange-traded products for institutional investors, told Forbes by email, terming the requirements “welcome.”
Overall, Duke continued, “MiCA which comes into effect in 2024, offers up some seemingly pragmatic and sensible regulation showing that the process of inviting input from the crypto community has worked.”
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