EU embraces crypto, will its banking sector?
The regulatory approach of the EU and the US when it comes to the cryptocurrency sector is now seas apart.
That distance can only continue to grow.
After European lawmakers approved the Markets in Crypto Assets (MiCA) regulation on Thursday (April 20), 517-38 in favor, the historically troubled digital asset sector now has a legitimate run into one of the world’s largest and most mature market economies.
Now, market observers increasingly see MiCA as helping the crypto industry finally realize access to something that has generally eluded it throughout its decade-plus history: banking.
The previous lack of regulatory clarity surrounding crypto, combined with its wild west reputation, led many banks to avoid dealing with such firms, leaving many in the sector unbanked.
The closures earlier this year of Silvergate Bank and Signature Bank reduced the number of financial institutions serving crypto firms in the US, a situation compounded by increasingly signaled federal hostility to the sector.
European crypto companies have tended to rely primarily on UK, Swiss and Baltic banks, as well as electronic money institutions (EMIs) for their banking needs.
MiCA is the first major attempt to establish a comprehensive rules-based framework for crypto companies’ operations, requiring firms to be licensed within the EU and comply with anti-money laundering (AML) and terrorist financing, as well as maintain a physical office within the EU and comply with various rules on governance and minimum capital requirement.
The EU takes the lead in crypto regulations
The EU’s landmark framework, which will be enforced at the 27-nation bloc’s state level, still needs to be officially approved by the EU Council, but after years of deliberation and two official delays, the EU laws are likely to be rolled out during the 12- to 18-month transition period that starting in June or July.
Changpeng Zhao, CEO of the world’s largest crypto exchange, Binance, tweeted his support for MiCA, calling it “a pragmatic solution.”
“We are ready to make adjustments to our business over the next 12-18 months to be in a position of full compliance,” Zhao added.
Binance has long faced regulatory investigations and problems in the United States due to concerns regarding the legality of its business.
US-based crypto exchange Coinbase separately tweeted after MiCA’s decision that the vote is an “important moment for crypto regulation” because the law will “give crypto organizations the confidence to invest and grow in the region.”
Considering how regulatory uncertainty has hampered the crypto industry’s ability to grow in the US, the move brings a certain amount of welcome transparency and stability to the global scene.
Also read: Coinbase expects a court battle with the SEC and more investments abroad
Make crypto more attractive
As a result of this transparency and stability, with AML and corporate control requirements that can help rein in the usual perceived volatility in the sector, MiCA may inspire many banks that looked askance at crypto to change their tune and become more willing to serve EU-licensed firms that they understand operate to a certain standard.
This stands in stark comparison with some of the world’s remaining major economies, such as the US and China.
At least on paper, China has officially banned crypto activity, while the U.S. appears to be conducting a nationally coordinated effort to force crypto out of the broader economy, at least according to industry observers and crypto players at odds with the enforcement-heavy approach of regulators such as the Securities and Exchange Commission. Exchange Commission (SEC).
“[MiCA] puts the EU at the forefront of the token economy, said Stefan Berger, MEP leader for the MiCA regulation. “…This regulation gives the EU a competitive advantage. The European crypto-asset industry has regulatory clarity that doesn’t exist in countries like the US.”
“The inability of the US Congress to pass policy is pushing the industry to other countries,” said US Senator Cynthia Lummis of Wyoming.
Already, major crypto firms such as Coinbase, Circle, Kraken, Gemini and Binance have shifted their focus from the US to prioritize their presence in Europe and abroad.
There is a clear shift happening within the crypto market, and as the EU works to get the technical implementation of the framework right, the biggest question that remains is how it will all shake out.
After all, being based outside the US does not mean that crypto firms will be out of reach of US regulators.
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