Limits on stablecoin trading, kyc on all nft marketplaces, banning d5 protocols and crashing btc’s price on purpose to get rid of proof of work. These are just a few of the insane proposals that have been floated as part of a massive crypto bill in the european union. That will soon become law. That’S why it’s high time for me to give you a bit of background about the european union and its crypto bill. Tell you exactly what it says and what effects it could have on the crypto market.
When it’s passed all right, you know the drill. I need to give you a disclaimer before we talk about any crypto bills. Being a financial advisor is not one of my skills. Education and entertainment are how i get my thrills. Please contact a financial advisor if your portfolio is looking ill.
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You’D be forgiven because it’s admittedly complex so bear with me as i break it all down. The european union began as a special economic zone after the second world war and consisted of a handful of european countries. The rationale was that lots of commerce between countries would deter the possibility of another war from arising so far, so good. The european union, as we know it today, was officially established in 1993 and in the years that followed a series of agreements and institutions were established, such as the schengen zone for free travel between european countries and the european economic area for free trade between european countries. In 1998, the european central bank was established, and in 2002 it introduced the euro currency.
The european countries, which use the euro as their national currency, make up the eurozone, which is yet another component of the european union’s complex architecture. Today the european union consists of 27 countries and the eurozone consists of 19 countries. This is important to note because the european union is in the process of putting together a digital euro and, as we’ve seen, there seems to be a correlation between cbdc, rollouts and crypto crackdowns. As an institution, the european union consists of seven smaller institutions and for the purposes of this video, you only need to be familiar with three. The european commission, the european parliament and the european council note that i will keep things super simple for the sake of both our sanities, the members of the european commission are elected by the governments of european countries, and it is the only institution in the european union That has the power to pass laws.
The members of the european parliament are elected by the citizens of european countries, and it can ask the european commission to draft laws on its behalf. The european council consists of the leaders of european countries, and it can likewise ask the european commission to draft laws on its behalf. When the european commission wants to pass a law, it drafts a bill and sends it to the european parliament and the european council for debate discussion amendments. You know all that boring stuff. Once both parties agree, the bill becomes a law, but there’s a small caveat here.
There are technically three types of laws the european commission can pass. The first is a regulation which applies to all european countries, regardless of their own national laws. The second is a directive, which means each european country can decide for itself how it wants to implement a law, and the third is a decision which relates only to select countries, companies or citizens in the european union. Now, if the name didn’t give it away, the european union regulation on markets in crypto assets or mica for short will become a regulation once it’s passed, meaning it will overrule all existing laws. European countries have when it comes to cryptocurrency.
The mica bill was tabled by the european commission in september 2020 and was passed on to the european parliament and european council for deliberation shortly afterwards. For more than a year, it took the form of mostly meaningless deliberations between these two parties a few months ago. However, the mica bill started making crypto headlines and that’s because of some of the ridiculous proposals some members of these european institutions wanted to put in it, which include the sort of things i mentioned in the introduction. Now, if you watch my video about bitstamp’s recent crypto report, you might recall that europe isn’t all that interested in crypto compared to other regions around the world. This is another part of why the mica bill flew under the radar for so long and why it subsequently caught the crypto industry off guard.
Fortunately, crypto lobbying groups in the eu were able to mobilize in time to convince members of the european parliament to remove the proposed proof of work ban from the microbial in march, a vote that was uncomfortably close. As always, the impetus for the proof-of-work ban was because of unjustified environmental concerns, and you can learn more about why that’s nothing more than fud using the link in the description now. If all of this wasn’t crazy enough, most of the discussions about mica are currently taking place behind closed doors. This means that nobody really knows for sure what it will look like once it becomes law and one of the only reasons we know anything at all is because of leaks to the press now. This is why i had one of my colleagues here at the coin bureau reach out to patrick hansen, a european crypto policy expert and hedge fund advisor who’s.
Been posting updates about the mica bill on twitter. Patrick has actually been the source for many of the crypto media articles about the mica bill, and i strongly suggest following him on twitter. If you live in europe, or even if you’re, just interested in keeping up with this unbelievable crypto bill as a result of his previous experience, patrick is on first name terms with a few european politicians and he’s been actively discussing crypto regulations with them. Ever since micah was tabled in september 2020, including the very politician behind the bill for what it’s worth patrick said, that this particular politician is not anti-crypto. They just want to create regulatory clarity for the european crypto industry, the same as in the united states and elsewhere.
Unfortunately, not all eu politicians want to use regulations for pro-crypto purposes. Another important thing that patrick pointed out is that there are other controversial crypto proposals snaking their way through the pipes of european bureaucracy which aren’t related to mica, namely an extreme version of the travel rule, which would see every crypto transaction reported to eu authorities. Now, whereas the mica bill has its origins in a politician’s quest for regulatory clarity, the travel rule has its origins in the infamous financial action task force or fat f, whose so-called crypto recommendations are being slowly rolled out as laws around the world. More about that, in the description now, as far as patrick can tell, there are three reasons why the european union is starting to clamp down on cryptocurrency. The first reason is a report by the european banking authority from 2019, which found that cryptocurrency does not fall under eu law, and this means new laws are required.
The second reason is the eu’s fifth anti-money laundering directive, amld5, which, as the name suggests and as you’ll hopefully recall, requires each european country to come up with their own money laundering regulations. Apparently many european countries have not implemented amld5. The third reason is none other than facebook’s digital currency project, which was initially dubbed libra and then rebranded to dm. This was its name when the project died earlier this year now i’ll quickly, point out that dm was recently resurrected as a crypto project called aptos with 200 million dollars in vc funding. I digress.
Libra first reared its head in 2019 and it’s safe to say that every central banker around the world pooped their pants at the possibility of a big tech company displacing their own centrally controlled currencies. Since that time, the rapid adoption of cryptocurrency around the world due to things like inflation and the seizing of citizen and central bank assets, seems to be a fourth reason why the european union is starting to get really concerned about cryptocurrencies, especially dollar-backed stablecoins. According to patrick’s estimates, the current mica bill could be approved as soon as this summer, given that it’s entered the final stage of deliberation between the three european institutions i mentioned earlier, at which point there would be a 6 to 24 month window for the regulations to Actually, roll out this begs the question of what we could see once the mica bill comes into force and you can find the long answer in the text of the bill itself, which comes in at a hefty 106 pages. Now i don’t know about you, but in this case i prefer the short answer given by the experts, which includes our friend patrick hansen, from a bird’s eye view. The mica bill seeks to set standards for things like the transparency of crypto projects, the governance of crypto projects and the custody of crypto currencies all in the name of user protection, free market competition.
You know the usual buzzwords, in contrast to most crypto regulations being proposed around the world. The mica bill actually takes some time to define the different types of cryptocurrencies. Its regulations apply to, and it identifies three distinct crypto categories, which of course come with their own sets of crypto regulations. The first category of cryptocurrency is quote utility tokens, which includes cryptocurrencies, like chain links, link, decentralized, mana and other cryptocurrencies with their own unique utilities. Interestingly, this category also includes bitcoin’s btc, ethereum’s, eth and possibly even nfts.
The mica bill specifies that, in order to sell a utility token or list it on a cryptocurrency exchange, the team or company behind the crypto project must provide a white paper to the relevant eu authorities explaining how their cryptocurrency works. Obviously, this requirement doesn’t apply to cryptocurrencies like btc and eth. Not surprisingly, this requirement also doesn’t apply to any cryptocurrencies sold to so-called qualified investors. Aka rich folks. The second category of cryptocurrency, according to the mica bill, is quote asset reference tokens or arts.
Arts include any cryptocurrencies that maintain a stable peg thanks to a basket of multiple assets. This presumably includes decentralized, stable coins like make a dao’s die, but this isn’t entirely clear. Oddly enough, mica specifies that arts do not have to register with regulators so long as their market cap doesn’t exceed 5 million euros, which is a very low threshold, to say the least. If an arts market cap does exceed 5 million euros, however, its issuer must register with regulators and abide by a series of stringent requirements regarding reserves. Holders of arts are also not allowed to earn interest of any kind.
As a cherry on top, the european banking authority has the power to step in and slap on, additional requirements for an art issuer if the market cap of their art becomes too large in the eba’s eyes. The third category of cryptocurrency, according to the microbial, is quote. E-Money tokens or emts, which includes centralized stable coins like tethers, usdt and circles usdc the mica bill will subject emts to more or less the same rules as arts, meaning they don’t have to jump through too many regulatory loopholes so long as their market caps remain small And emt issuers cannot allow emt holders to earn interest. The only real difference is that emt issuers will still have to register as an electronic money institution so that european regulators can make sure their emts don’t threaten the integrity of the euro. Emt issuers get their own cherry on top too, because if their emts grow large enough to be considered quote significant by european banking regulators, you can bet that they will come unknocking.
As patrick pointed out in an article for stanford law school, the mica bill’s crypto rules do not seem to apply to security tokens which includes stuff like tokenized stocks. As mentioned earlier, however, the microbials crypto rules do seem to apply to nfts and it’s possible that they could apply to nft marketplaces or even nft creators themselves. On that note, if you’re curious about the top nft marketplaces out there, you can learn more about them using the link in the description anyways. As you can imagine, the mica bill has had its fair share of concerns and criticisms from the crypto community and patrick identified. Three in his aforementioned article for stanford law school first, the mica bill’s definition of a utility token is very broad as it could potentially be applied to any token that lives on a blockchain.
Hence all the concerns around nfts, patrick and others argue that this broad definition could seriously stifle crypto innovation in the european union. The second concern with the microbial relates to decentralized finance, particularly the governance tokens that are used in d5. Protocols like make a dao, uniswap and arve, because d5 protocols aren’t legal entities. This would make it impossible for them to register with the relevant authorities and though the microbill’s rules may not apply to existing d5 protocols, they would almost certainly apply to future d5 protocols, which would again stifle crypto innovation. Now the third and biggest concern with the mica bill involves emts, specifically stable coins.
In short, stable coins like usdt and usdc, would almost certainly count, as quote significant in the eyes of european regulators. This would require their parent companies to register with european authorities and be subject to strict capital controls, or else they’ll be delisted from european cryptocurrency exchanges and potentially made unavailable to european crypto traders and investors. All together. Patrick goes as far as to suggest that the stringent stablecoin proposals in the mica bill prove that european regulators have become paranoid about the possibility of a privately issued stablecoin challenging the euro. Ever since facebook released libra in 2019 – and i reckon he’s right at the end of his article patrick points out that the european commission’s own impact assessment of the proposal suggests that crypto startups would probably have to spend tens of millions of euros on regulatory approval, which Would basically be the nail in the coffin for the european crypto industry, as patrick pointed out in another stanford article about the mica bill, europe’s generally aggressive regulations have killed its competitiveness with not a single tech giant hailing from the region.
To add insult to injury, european representation is declining on the leaderboard of the world’s largest 100 companies, and europe’s share of global equity markets has consistently been cut in half over the last couple of decades. Then again, you could argue that all these valuations are just one big market bubble and you can learn about the largest market bubbles using the link in the description. So what does the mica bill mean for crypto? Well, quite a bit i’ll start by reiterating that nobody really knows what the mica bill will look like when it becomes law. One thing is for certain, though, and that’s that stable coins are in the crosshairs of the european union’s regulatory sniper scope, or, should i say, the sites of its bazooka.
As far as patrick can tell there’s a very good chance. The eu will put all those stringent stablecoin regulations in place and that’s bad news for crypto. This is again because the european union is worried that stable coins could undermine the euro and, to be honest, they should be afraid. This is because the market cap of stable coins has been growing at an exponential rate, along with their actual adoption. Argentina, venezuela and ukraine are a few countries that have turned two stable coins and myanmar’s government in exile, even declared usdt as the country’s national currency.
Earlier this year, besides, providing a hedge against high local inflation, stable coins allow for instant settlement and little to no government control, which is a nice thing to have when you’re living in a totalitarian country. More importantly, stable coins make it possible for the free market to set interest rates on lending and borrowing rather than the central bank and the mica bill’s emphasis on preventing stable coin holders from earning interest is proof that this is something the european union is especially concerned About now for context, interest rates in the eurozone hit zero in 2012 and have been negative since 2014. This is arguably the primary reason why things like property values in most european countries have gone through the roof. Since then, negative interest rates also make stable coins. A very attractive alternative to europeans, holding on to large amounts of fiat or simply trying to save and the longer rates stay negative in the eurozone.
The more attractive stable coins will become now. This wouldn’t necessarily be a problem if the stable coins in question were pegged to the euro, but all the larger, stable coins are pegged to the us dollar and some of their issuers are regulated and therefore controlled by the u.s government. Now i never understood why that was until patrick posted a thread about it on twitter. It all has to do with the assets backing stablecoins in circulation.
If you watch my video about the assets backing the largest stablecoins you’ll know that usdc and busd are backed primarily by u.s government debt. This is because circle and paxos can earn interest on the reserves of their users, while simultaneously being confident that they can redeem stable coins for cash at any time since the u.s bond market is very liquid, it also subsidizes the u.s government with foreign money, but that’s A topic for another time, logically, the issuer of a regulated euro-denominated stablecoin would likewise want to back it with european government debt to earn a safe yield.
But as i just mentioned, euro interest rates are negative and this means there’s really no financial incentive to create a euro stablecoin on the issuer’s end. As it so happens, the european central bank is set to raise interest rates above zero for the first time in a decade later this year and assuming it’s successful, this could set the stage for the launch of a euro stablecoin. This assumes that mica doesn’t kill the prospect of a euro stablecoin with a regulatory noose before that happens, and it’s one of the many arguments that patrick is bringing to the table in his discussions with european politicians. To paraphrase part of patrick’s conversation with one of my colleagues, the european union should compete rather than retreat when it comes to cryptocurrencies and stable coins, because these technologies will continue to develop regardless of whether it embraces them or not. I would add an argument from chanalysis co-founder jonathan levin, and that’s that regulating crypto technologies into oblivion constitutes a national security threat, because then you really have no idea what’s being developed or how quickly it’s being adopted by your citizenry.
This is one of the many epic arguments jonathan made during a recent crypto hearing in front of us politicians, and you can watch my breakdown of that hearing, using the link in the description and that’s all for today’s video about the european union’s upcoming crypto regulations. If you found it interesting smash that, like button, remember to subscribe to the channel too and ping that notification bell for good measure, while you wait for the next video to hit the tube, you can check out my second channel called coin bureau clips. You can also tune in to the coin bureau podcast when you’re out and about to keep that crypto knowledge flowing if you’re addicted to social media. You can follow me on twitter, tiktok and instagram. I also post detailed, daily crypto updates on telegram which might come in handy.
I even have a weekly newsletter, where i reveal my personal crypto portfolio as well as which topics i’ll be tackling next. Also note that there’s only about a week in a bit before the end of our one bitcoin giveaway, you can find details about that using the link in the description, along with all the other resources i just mentioned. As always, thank you for watching and i’ll see. You again very soon this is guy bidding you goodbye,
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