How Europe Maneuvered Back into the Crypto-Assets Competition with MiCA
Read the entire Digital Finance proposal from the European Commission here.
Earlier this month, Beijing announced to the world that they were testing their digital yuan with an audience of a dizzying 400 million people across major cities, including Shanghai and Hong Kong. Not to be outdone, the U.S. Federal Reserve Bank of Boston also announced it was researching (with MIT) the applications of a central bank digital currency.
These dual announcements gripped the blockchain community, and rightfully so. Chris Larsen, the co-founder of INATBA-member company Ripple, called it a “tech cold war” between these two superpowers — a technological battle for the ongoing competition to unseat the U.S. dollar as the global reserve currency, and the newest battleground for the broader power struggle between these countries.
Mainly absent from these comparisons was Europe — until now. With the release of proposed regulations for the Market in Crypto-assets (MiCA), Europe has expertly maneuvered itself back into the competition, with clear-cut guidelines for its member countries to oversee, regulate, and encourage crypto-asset and blockchain applications.
While the U.S. and China competed over the design and launch of CBDCs, Europe took the 10,000-foot approach with sweeping proposals for all crypto-assets and crypto-asset services. By crypto-asset, they mean anything that signifies a “digital representation of value or rights which may be transferred and stored electronically, using distributed ledger or similar technology” (pg. 34, MiCA).
MiCA is clearly designed to bring EU-wide clarity to regulating and expanding a wide variety of digital assets, cryptocurrencies/digital currencies, and tokens.
One of MiCA’s defining characteristics is that it encompasses current and yet-to-be-created tokens and coins. Designing this “grandfathering” model brings long-term clarity to founders who are considering basing themselves and their projects in Europe and provides a wellspring of static guidelines for state agencies across the EEA to familiarize themselves with for the years to come.
As an EU regulation, the nature of MiCA means, once accepted, it will be applicable throughout the European Economic Area immediately — countries need not pass their own legislation. MiCA will also replace national frameworks for many crypto-assets. Compared to the piecemeal state/federal approach of the United States, Europe’s advantage is striking. A recent example of this country-wide mismatch in regulation is the crypto exchange Kraken being able to open a bank in Wyoming — after it exited New York state after sparring over the state’s BitLicense requirements. With MiCA, European countries are freed from this quandary — meaning founders and technologists are similarly released from these considerations when locating and selling in Europe. As long as they comply with MiCA, they should operate across the EEA without much issue.
Interestingly, MiCA sets out that crypto-assets that define as financial instruments or electronic money are excluded and remain under the existing auspices of the Markets in Financial Instruments Directive and the Electronic Money Directive.
This strategy is a significant step forward in Europe’s quest to attract tech innovators, companies, and investment. Considering the EU’s other major tech initiatives (such as its €2 billion blockchain and AI fund), Europe is not just carving out its own place in the “tech cold war.” It is seeking to rise above it with a cunning strategy. This will work as long as the regulation, when applied in real-time, is not impossible or overly onerous to follow. That remains to be seen and will be the key to whether Europe becomes the hub of technological innovation it aspires to be.
Nevertheless, at a time when the COVID-19 pandemic is already delivering twin effects of de-globalization and hyper-localism, Europe has (at least in the crypto-asset sector) paved a route forward for European countries and citizens to move forward together.