The regulation approach of the European Union and the United States when it comes to the cryptocurrency sector is now oceans apart.
That distance may only continue growing.
After European lawmakers approved the Markets in Crypto Assets (MiCA) regulation Thursday (April 20), 517-38 in favor, the historically embattled digital asset sector now has a legitimate on-ramp to one of the world’s largest and most mature market economies.
Now, market observers are increasingly taking the view that MiCA may help the crypto industry finally realize access to something that has generally eluded it throughout its decade-plus history: banking services.
The previous lack of regulatory clarity around crypto, combined with its Wild West reputation, caused 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 whittled down the number of financial institutions servicing crypto firms in the U.S., a situation compounded by increasingly signaled federal hostility to the sector.
European crypto companies have tended to rely primarily on British, 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 rule-based framework for crypto companies’ operations, requiring firms to be licensed within the EU and comply with anti-money laundering (AML) and terrorism finance safeguards, as well as maintain a physical office within the EU and comply with various rules on governance and minimum capital requirements.
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 deliberations and two official delays, the EU laws will likely be rolled out over a 12- to 18-month transition period that will start this June or July.
Changpeng Zhao, CEO of the world’s largest crypto exchange, Binance, tweeted his support of MiCA, calling it “a pragmatic solution.”
The European Parliament voted for MiCA to be implemented.
This means one of the world’s largest markets is introducing tailored regulations for crypto to protect users and support innovation.
The fine details will matter, but overall we think this is a pragmatic solution to…
— CZ 🔶 Binance (@cz_binance) April 20, 2023
“We’re 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 trouble in the U.S. over concerns regarding the legality of its operations.
U.S.-based crypto exchange Coinbase separately tweeted after MiCA’s passage that the vote is a “pivotal moment for crypto regulation” because the law will “give crypto organizations the confidence to invest and grow in the region.”
The @Europarl_EN‘s adoption of #MiCA is a pivotal moment for crypto regulation. 🇪🇺
This comprehensive framework will give crypto organizations the confidence to invest and grow in the region. https://t.co/tYhJW8fBpX
— Coinbase (@coinbase) April 20, 2023
Considering how regulatory uncertainty has hamstrung the crypto industry’s ability to grow within the U.S., the move brings some amount of welcomed transparency and stability to the global stage.
Read also: Coinbase Expects Court Battle With SEC and More Investments Overseas
As a result of that transparency and stability, with AML and corporate control requirements that may help rein in the commonly perceived volatility of the sector, MiCA may inspire many banks that looked askance at crypto to change their tune and become more willing to service EU-licensed firms that they understand are operating to a certain standard.
This stands in stark comparison to some of the world’s remaining major economies, such as the U.S. and China.
At least on paper, China has officially banned crypto activity, while the U.S. appears to be undertaking a nationally coordinated effort to force crypto out of the wider economy, at least according to industry observers and crypto players at odds with the enforcement-heavy approach of regulators like the Securities and Exchange Commission (SEC).
“[MiCA] puts the EU at the forefront of the token economy,” said Stefan Berger, lead MEP for the MiCA regulation. “…This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.”
“The failure of the United States Congress to enact policy is pushing the industry to other countries,” said U.S. Sen. Cynthia Lummis of Wyoming.
Already, major crypto firms like Coinbase, Circle, Kraken, Gemini and Binance have shifted focus from the U.S. to prioritize their presence in Europe and abroad.
There is a clear realignment happening within the crypto market, and as the EU works to get the technical implementation of its framework right, the biggest question remaining is how it will all shake out.
After all, being based outside of the U.S. does not mean crypto firms will be out of reach of U.S. regulators.
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