MiCA: The good, the bad and the ugly of the EU’s crypto rules

Published

2 years ago

August 30, 2023

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While United States regulators such as Securities and Exchange Commission Chair Gary Gensler make bad-faith claims that “there’s been clarity for years” when it comes to cryptocurrency, the European Union took real action in April when it passed the Markets in Crypto-Assets (MiCA) regulatory framework. While imperfect, it was a crucial move in the right direction for our industry and a signal to the U.S. that it will be left behind if it continues to stand still and rely on antiquated regulations.

Similar to how Bitcoin (BTC) took old technological, economic and financial concepts to build something new, regulators must rework existing regulatory and financial security frameworks to create a successful environment for participants. There are many useful and valid elements in our existing financial and regulatory frameworks.

On the other hand, there are many problems with the blockchain industry that the traditional regulatory framework does not address sufficiently — this leads to frustration and wasted resources as lawyers bicker over potential interpretations of statements instead of abiding by clearly defined legislation.

While Web3’s practical applications have shown great potential, it remains a remix of this traditional financial system — albeit a remix dedicated to improving efficiency, openness and fairness for all participants.

MiCA: A necessary but mediocre step forward for regulation

Despite the complex language around financial and securities regulations, the situation is really more simple than it appears. In short, our regulations attempt to prevent people from doing bad things to other people. Examples could include terrorists sending or receiving money to facilitate acts of terrorism or fraudsters making fraudulent claims to investors. It also includes ensuring that licensed individuals and entities are held accountable to a set of operating standards developed over the history of our modern financial markets.

In the more technical sense, the laws governing these operating standards are:

Anti-Money Laundering and Counter-Terrorist Financing laws
Securities and commodities laws
Market infrastructure regulation

Despite the SEC’s insistence that existing regulations cover these three issues broadly, many elements manage to fall through the cracks of these roughly 100-year-old definitions, rules and penalties. We can largely attribute that problem to two things.

One is the categorization of digital assets. Are they commodities or securities, or do they fall under an entirely new category? Digital tokens often exhibit characteristics of one, both or neither, creating a significant dilemma for existing frameworks.

*An overview of MiCA’s key points. Source: Circle*

The second is that the pace of innovation far outstrips the rate at which slow and sophisticated traditional finance regulatory frameworks can adapt. Governments have the responsibility of establishing regulations that are robust enough to prevent misconduct and protect stakeholders, yet flexible enough to accommodate the advancements promised by this burgeoning industry. How are these authorities supposed to compete with a smart contract that can be deployed in minutes and then upgraded that same day to have a completely different set of logic and parameters?

To those of us in this fast-moving industry, it is glaringly obvious that we need new regulations and guidelines that are compatible with the unique benefits and challenges Web3 offers.

MiCA constitutes one promising attempt, though the framework will struggle as the individual member-states of the EU test the framework in their native courts and build a patchwork example of cases with varied outcomes. That being said, here’s the good, the bad and the ugly of MiCA.

MiCA: The good

The best part of MiCA? Tighter rules and larger punishments for crypto asset service providers who lose customer funds! This is a longstanding issue within crypto where the exchanges and wallets have no liability when they are hacked or compromised and lose users’ funds, and has led to tens of billions of dollars lost with no options for users. This is unacceptable and has directly contributed to many individuals being irrevocably destroyed in our industry by bad actors.

MiCA: The bad

Although it states a primary goal of preventing market manipulation, the majority of manipulation is happening outside of the EU (via offshore entities), so it doesn’t really help many people directly. It may help indirectly, though, as it signals to the market the direction regulators are moving toward — though this also depends on the punishments levied when cases come to a judge.

Noticeably excluded are decentralized finance and future central bank digital currencies. Although it might be seen as a positive that DeFi is not included, the vast majority of on-chain transactions and activity are DeFi, and it is frustrating that this was skipped.

MiCA: The ugly

Unfortunately, there are many concerning or otherwise “ugly” elements present in MiCA that readers must be aware of, and not only if they’re EU citizens.

The “Travel Rule” greatly increased the surveillance and recording of financial transactions and online activity in an unprecedented manner by forcing service providers to identify the recipient as well as the sender for every transaction.
A very low threshold of 1,000 euros for reporting leads to increased surveillance, as compared with the traditional threshold of $10,000 in the United States for banks. It’s irritating to have regular people be subjected to these Orwellian levels of scrutiny, given that the vast majority of financial malfeasance is done by larger banks and institutions via money laundering and other fraudulent activities.
It requires official approval from lawmakers before launching tokens or liquidity. This will dramatically stifle the number of legitimate projects launched within the EU, both directly and indirectly. It’s hard to assume that the queues will be short and the process expeditious — governments have proven time and time again that they are slow and inefficient, especially where new technologies are concerned.

There’s another core problem inherent in any regulation by the European Union that bears repeating: The fragmented nature of the EU’s court system makes it difficult to draw meaningful conclusions about the impact of individual future rulings. In short, this is a minor win for Web3 and requires much more work around the world by regulators.

This is in stark contrast to the U.S. court system, which is — traditionally, albeit not with Web3 — a unified and solid foundation of legal rulings. A fragmented series of rulings makes it very unlikely that other countries will really follow MiCA full-steam ahead; instead, they will likely wait for the U.S. to come out with its own substantial framework and regulatory guidelines.

Regulators, exchange operators and founders all say that until the U.S. has a substantial set of regulatory guidelines, they will be proceeding very cautiously and slowly. Although they may take some inspiration from MiCA, it is not the North Star they need.

The blockchain industry is at a crossroads, for both regulators and users. Countless individuals have had their life savings ruined by fraud and scams, while regulators have struggled to keep up with the rapid pace of innovation in the industry.

Mike Sarvodaya is the founder of the Galactica Network, a layer-1 protocol that leverages zero-knowledge cryptography to achieve Sybil resistance, compliant privacy and infuse robust reputation primitives into DeFi and DAOs. He graduated first in his class from Utrecht University with an MsC in financial econometrics. Before Galactica, he spent the majority of his career as a risk manager and analyst at global hedge funds focused on proprietary trading in currencies, stocks, commodities, and digital assets.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Politics

US to get its first XRP-based ETF, launching on NYSE Arca

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3 hours ago

April 8, 2025

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US to get its first XRP-based ETF, launching on NYSE Arca

Asset manager Teucrium Investment Advisors is set to launch the first XRP-based exchange-traded fund in the US markets, a leveraged XRP (ETF) on the NYSE Arca.

The Teucrium 2x Long Daily XRP ETF will seek to offer investors two times the daily return of the XRP (XRP) token with a 1.85% management fee and annual expense ratio, according to the company’s website. The XRP-based ETF will trade under the XXRP ticker beginning April 8.

“If you have a short-term high-conviction view on XRP prices, you may consider exploring the Teucrium 2x Long Daily XRP ETF,” the alternative asset manager said.

XXRP currently has $2 million worth of net assets.

Teucrium founder and CEO Sal Gilbertie told Bloomberg on April 7 that investors had shown strong interest in an XRP ETF and hinted that it may file to list more crypto ETFs in the future.

Gilbertie was also pleased that XXRP would launch during a market downturn driven largely by US President Donald Trump’s tariffs.

“What better time to launch a product than when prices are low?” Gilbertie told Bloomberg.

Likelihood of an approved spot XRP ETF still high: Analyst

Bloomberg ETF analyst Eric Balchunas said it was “very odd” to see a new asset’s first ETF come in leveraged form — however, he added that the odds of a spot XRP ETF being approved remain “pretty high.”

Several spot XRP ETF applications from the likes of Grayscale, Bitwise, Franklin Templeton, Canary Capital and 21Shares are being reviewed by the Securities and Exchange Commission.

In February, Balchunas and fellow Bloomberg ETF analyst James Seyffart attributed 65% approval odds to a spot XRP ETF in 2025.

Predictions market Polymarket states there is currently a 75% chance that the SEC will approve a spot XRP ETF in 2025.

Up until recently, ETF issuers would have seen a different environment for filing for XRP ETFs as Ripple Labs — the creators of the XRP token — and the SEC battled out a four-year court battle over XRP’s security status.

That case came to a close last month.

Teucrium has amassed over $310 million worth of assets under management since it was founded in 2010.

It offers mostly agricultural commodities, such as ETFs tracking the likes of corn, soybeans, sugar and wheat.

Magazine: XRP win leaves Ripple and industry with no crypto legal precedent set

Politics

Aussie regulator to shut 95 ‘hydra’ firms linked to crypto, romance scams

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5 hours ago

April 8, 2025

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Aussie regulator to shut 95 ‘hydra’ firms linked to crypto, romance scams

Australia’s corporate watchdog has been given the nod to shut down 95 “hydra” companies that it suspects engaged in crypto investment and romance scams, known as “pig butchering.”

The Australian Securities and Investments Commission’s application to wind up the companies was approved by the Federal Court of Australia on just and equitable grounds after ASIC found that most of the companies had been incorporated with false information.

Many of these companies were set up purporting to provide “genuine services” but were instead believed to be scamming their victims, ASIC Deputy Chair Sarah Court said in an April 8 statement.

“There appears to be a common pattern of scam activity in the nature of ‘pig butchering,’” Justice Angus Stewart said in an April 4 court ruling after looking at 48 “Reviews of Misconduct” from 17 companies accused of facilitating romance scams. The judgment was made on March 21.

Pig butchering scams involve scammers building fake relationships with victims to win their trust before convincing them to invest in a fraudulent crypto or financial scheme.

The securities regulator also suspects that much of the scam activity is coming from Southeast Asia.

Insolvency and restructuring advisers Catherine Conneely and Thomas Birch of Cor Cordis have been appointed as joint liquidators of the 95 companies.

Nearly 1,500 claims by “investors” had been received by the provisional liquidators, amounting to total claims of over $35.8 million, according to the court order.

The claimants are based in 14 countries, including Australia, the US, Cameroon, Ghana, India, Nepal, the Philippines and France.

The provisional liquidators found that only three of the 95 firms had assets to their name and recommended that the other 92 companies be wound up and immediately deregistered.

ASIC shutting down scam websites

ASIC said it has been removing around 130 scam websites each week of late, bringing its total to over 10,000 sites, which have included over 7,200 fake investment platform scams and 1,564 phishing scams.

“However, these scams are like hydras: you shut down one and two more take its place. That’s why we’re warning consumers that the threat of scams and identity fraud remains high. We remind consumers to be vigilant,” Court said.

Australia’s National Anti-Scam Centre recently reported a 26% fall in scam losses to $2 billion in 2024, while the number of scam reports also fell by 17.8% to 494,732.

Magazine: Financial nihilism in crypto is over — It’s time to dream big again

Politics

SEC crypto trading roundtable to include crypto giants Uniswap, Coinbase

Published

6 hours ago

April 8, 2025

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SEC crypto trading roundtable to include crypto giants Uniswap, Coinbase

The US Securities and Exchange Commission has released the list of executives from US crypto and finance giants that will take part in a roundtable discussion on crypto trading regulation.

On April 7, the regulator said its upcoming April 11 roundtable will discuss how it should handle crypto trading rules, calling it “Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading.”

It will be the second in a series of discussions on crypto, headed by its recently-formed Crypto Task Force.

Taking part are Uniswap Labs chief legal officer Katherine Minarik, Cumberland DRW associate general counsel Chelsea Pizzola and Coinbase institutional product vice president Gregory Tusar — all firms that had once been in the regulator’s scope.

Under the Biden administration, the regulator sued Cumberland DRW in October and Coinbase in June 2023 for alleged securities law violations, but both lawsuits were dropped this year under the Trump administration.

The SEC also started an investigation for possible enforcement action into Uniswap Labs in April 2024, which was dropped in February with no further action.

Also taking part in the roundtable are New York Stock Exchange product chief Jon Herrick, crypto brokerage FalconX business lead Austin Reid, securities tokenizing firm Texture Capital CEO Richard Johnson and the University of California, Berkeley finance chair Christine Parlour.

Dave Lauer, co-founder of the advocacy group We the Investors and Tyler Gellasch, CEO of the not-for-profit Healthy Markets Association, will also take part, while law firm Goodwin Procter partner Nicholas Losurdo will moderate the discussion.

Representing the SEC will be acting chair Mark Uyeda, Crypto Task Force chief of staff Richard Gabbert and Commissioners Caroline Crenshaw and Hester Peirce.

The roundtable is the second crypto-focused discussion in a series of five that the SEC dubbed the “Spring Sprint Toward Crypto Clarity.” The first was on March 21, regarding the legal status of crypto, while three future discussions will cover custody, tokenization, and decentralized finance (DeFi).

SEC’s Uyeda orders review of staff crypto comments

The roundtables come as the SEC, under President Donald Trump, works to revamp its oversight of the crypto industry, with its latest action being to review staff statements on crypto so they can possibly be changed or withdrawn.

Uyeda said in an April 5 statement shared by the SEC on X that due to Trump’s executive order on deregulation and recommendations from the Elon Musk-led Department of Government Efficiency, or DOGE, he was reviewing seven staff statements, five of which concerned crypto.

“The purpose of this review is to identify staff statements that should be modified or rescinded consistent with current agency priorities,” Uyeda said.

The first on the list was an April 2019 analysis from the Strategic Hub for Innovation and Financial Technology on how crypto sales could be investment contracts under the securities defining Howey test — an argument the agency had made to sue multiple crypto firms for legal violations.

Also up for review are two Division of Investment Management statements, one from May 2021 asking investors to consider the risks of funds with exposure to Bitcoin futures and a November 2020 statement asking for feedback on whether state-chartered banks meet standards to be qualified custodians.

The SEC will also look into a December 2022 Division of Corporation Finance statement that urged SEC-regulated companies to evaluate their disclosures to mention if a slew of crypto firm bankruptcies and collapses at the time impacted their business.

Finally, the agency will review a Division of Examinations alert from February 2021 that said, “a number of activities related to the offer, sale and trading of digital assets that are securities present unique risks to investors.”

Legal Panel: XRP win leaves Ripple a ‘bad actor’ with no crypto legal precedent set