The European Union voting to approve the Markets in Crypto-Assets regulation this week is the culmination of a decade-long slog by lawmakers to create a legal framework for the industry. Crypto industry representatives welcomed the MiCA vote this week.
“Any move towards a global standard and away from a patchwork approach is highly exciting for the industry,” Amanda Shoffel, Bitstamp’s UK general manager and chief compliance officer, told DL News. “A regulatory framework that adequately institutionalises the market will help it mature and boost its reputation within the financial services landscape.”
MiCA is expected to take effect in July, rolling out over the next few years. As the world — and particularly the US — watches new laws and amendments to MiCA will surely have international implications.
Here is how the EU went from talking about the risks of cryptocurrencies in 2013 to implementing MiCA in 2023.
A timeline over the EU’s journey to voting through the MiCA crypto law
- The European Securities and Markets Authority begins analysing virtual currencies. While cryptocurrencies are still in their infancy, ESMA believes they should be monitored as they have the potential to become more widespread and to create new risks to investors.
- ESMA publishes a call for evidence on investments using virtual currencies or distributed ledger technology.
- The European Central Bank issues a paper analysing blockchain and distributed ledger technology. The ECB study acknowledges potential advantages of digital currencies, and urges EU members to begin work on legislation to monitor crypto activity.
- The initial coin offering boom and consequent crash throughout the year leads to increased scrutiny of crypto assets after users around the world lose money to scams, exploits, and theft. China and South Korea ban ICOs, while ESMA releases statements geared towards investors and firms
- The European Commission sends mandates assessments by the ESMA and the European Banking Authority to assess whether or not the existing EU regulatory framework would be adequate to apply to crypto.
- February: ESMA issues a report on blockchain’s relationship to securities markets, and identifies several challenges for lawmakers to address. These include scalability, privacy, and regulatory issues. ESMA suggests the construction of a regulatory framework to allow the technology to thrive in the bloc.
- June: ESMA issues a discussion paper about how blockchain can be used in the securities markets and the risks thereoff.
- March: The European Commission issues its FinTech Action Plan to explore how to foster innovation in the financial sector while maintaining a level playing field and protecting consumers.
- July: The EU Parliament commissions two reports focused on central bank monetary policy, and financial crime such as money laundering. The reports will lead to an amendment of the EU’s Fourth Anti-Money Laundering Directive to include crypto trading platforms and hosted wallets as subject to legal requirements.
- October: The Financial Stability Board, an international organisation for establishing regulatory coordination between nations, releases a paper outlining risks and future challenges faced by nations in regulating crypto assets.
- June: Facebook announces the cryptocurrency project Libra together with a consortium of companies. Libra, which was later renamed to Diem, immediately comes under fire worldwide for allegedly posing a threat to central banks. Worries over Libra will inevitably inform the debate around the MiCA proposal introduced the following year.
- December: The European Commission launches a public consultation on the regulatory framework for crypto-assets.
- January: The International Monetary Fund publishes recommendations for regulators, with emphasis on robust requirements for crypto firms surrounding governance, monitoring, and cooperation among nations.
- September 2020: the European Commission proposes the MiCA regulation in an attempt to establish a comprehensive regulatory framework for crypto across the bloc. The proposal outlines the need to provide legal clarity for use of crypto-assets and to tackle risks such as investor protection, market integrity, and financial stability.
- February: Both the European Central Bank and the European Economic and Social Committee render opinions on the proposed law. In the ECB’s document, the central bank acknowledges digital assets as “money substitutes,” and calls for clarity on defining various digital assets to mitigate the complications of the creation of catch-all regulations. The EESC, on the other hand, calls for the urgent need for uniform rules across the bloc, to prevent the risk of a “fragmentary regulatory framework” across member states.
- June: The European Data Supervisor publishes an opinion on MiCA, and places strong emphasis on the need to fully understand the technology prior to implementing the law. Additionally, EDPS outlines concerns surrounding user data protection, both at the smart contract level and in the operation of crypto companies.
- November: David Marcus steps down as the head of Novi, Meta’s digital wallet project. As a co-founder of Diem, his exodus and the exit of several partners in the Diem consortium put the cryptocurrency project’s future further at risk, with the project already buckling under regulatory scrutiny. At this stage, however, it’s role in pushing lawmakers to take action to ink new rules have already been played out.
- November: The price of Bitcoin reaches an all-time high of $68,789.63. At the same time, whispers of a looming crypto winter begin to spread across the industry, spurned on by speculation that the Federal Reserve will hike interest rates.
- January: The Diem Association sells the cryptocurrency project to crypto-friendly bank Silvergate.
- January: ESMA vice-chair Erik Thedéen calls for a bloc-wide ban on proof of work crypto mining in an interview with the Financial Times, citing the environmental impact of Bitcoin mining. Environmental advocates and lawmakers had already called for a similar ban.
- March: The EU Parliament’s Committee on Economic and Monetary Affairs votes against a ban on crypto mining.
Angesichts der wichtigen Debatte um Nachhaltigkeit ist mein Vorschlag, Crypto-Assets, wie alle anderen Finanzprodukte, in den Bereich der #Taxonomie mitaufzunehmen. Eine eigenständige Thematisierung des Proof-of-Work ist in der #MiCA nicht mehr vorgesehen.— Stefan Berger (@DrStefanBerger) March 7, 2022
- May: Terraform Labs’ stablecoin TerraUSD and its backing asset Luna crash to the tune of $60 billion. The collapse will not only lead to thousands of clients being out of pocket and prosecutors launching an international manhunt for founder Do Kwon, but it will also set off a chain of company collapses in the industry. For lawmakers and regulators, the case provides more fodder for stricter enforcement of existing laws and to keep working on laws like MiCA.
- June: The European Council and European Parliament reach a provisional agreement stating crypto-asset service providers will need authorisation in order to operate within the EU. German lawmaker Stefan Berger, who spearheads the project, says the deal marks the beginning of the end for the “crypto Wild West.” The first vote to ratify MiCA is scheduled for November. This version of the bill does not ban proof of work cryptocurrencies, but includes a provision that requires companies to disclose their environmental considerations.
- October: The EU council confirms its intention to approve a draft legislative package, which includes MiCA.
- November: The European Parliament postpones the vote for MiCA to February 2023 due to the complex challenge of translating the highly-technical text to 24 different languages.
- November: The collapse of exchange FTX amidst a flurry of fraud and corporate negligence highlights the need for clear crypto laws on both sides of the Atlantic.
- January: The European Parliament postpones the MiCA vote to April due to the ongoing translation issues.
- February: The US Congress dispatches a delegation of staffers to the European Union to learn more about the EU’s new legal framework for crypto. They met with EU officials and regulators as well as crypto industry lobbyists for firms and trade groups based in the bloc.
- April: The European Parliament votes to pass MiCA into legislation, with members voting in favour at an overwhelming 13:1 ratio. The industry is now expecting the EBA and ESMA ro provide more operational details and guidance on how stablecoins rules are implemented. “While the MiCA journey is far from over, Europe is a global leader in crypto regulation, and has provided clarity to businesses on how to operate in the single market,” said Janet Ho, head of policy for Europe at blockchain research firm Chainalysis.
Additional reporting by Eric Johansson.