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Cryptocurrencies: The European Union is considering regulating the market

In full expansion, crypto-assets are gradually being regulated at the European level. Through several draft regulations, the European Union (EU) aims to better protect consumers, reduce the carbon footprint created by these digital assets and ensure the same traceability as for regular money transfers. For players in the sector, this new European legislation risks jeopardizing the viability of the cryptocurrency market.

EU establishes new rules to regulate crypto assets

Draft European regulation on “crypto-asset markets”, known as “MiCA”[1], is the first step in the regulation of cryptocurrencies within the EU. Voted in first reading on March 14, 2022 by the Committee on Economic and Monetary Affairs of the European Parliament, the proposal for a regulation of the European Parliament and of the Council on crypto-asset markets and amending Directive (EU) 2019/1937 , seeks to establish a “harmonized and specific framework” in the EU .

The project is part of the legislative package related to digital financing presented by the European Commission on September 24, 2020. Its goal is to encourage innovation, while guaranteeing consumer protection, market integrity and financial stability. Specifically, it creates a European Digital Asset Service Provider (PSAN) status[2].

On March 31, 2022, representatives from the Committee on Economic and Monetary Affairs and the Committee on Civil Liberties took the second step by adopting in the first reading the Draft Law aimed at strengthening EU rules against money laundering and terrorist financing.[3]. As a result of the AML/CFT legislative package presented on July 20, 2021, this law aims to ensure the traceability of crypto-assets equivalent to conventional money transfers and block suspicious transactions.[4].

According to the project, “all transfers of crypto-assets”, whether transactions are made from hosted (platforms) or non-hosted wallets (owned by a private user), regardless of the amount, “should be accompanied by information on sources and recipients”. Only transfers will be exempted from person to person made without a service provider or between service providers acting on their own account.[5].

A regulation that worries players in the sector

Several players in the crypto-asset market warn of the risks of the final adoption of these texts. Asked by Ouest France, Claire Balva, head of blockchain and cryptocurrencies at KPMG France, believes the measure requiring identity verification of people transacting on hostless wallets “goes against the philosophy of cryptocurrencies which [est] to ensure privacy on the Internet. According to her, this traceability requirement “isolates the European market and makes it lose competitiveness compared to other trading platforms”.[6].

Similarly, the Association for the Development of Digital Assets considers, in a press release dated March 31, 2022, that “such a measure presents many difficulties, especially in its practical implementation” and that it could “undermine the development of the crypto asset sector in Europe »[7].

The MiCA project has also raised concerns. In its initial version, Article 61 of the text envisaged subjecting crypto-assets to minimum standards of environmental sustainability. This measure would have the effect of banning in Europe the mining of certain cryptocurrencies using proof-of-work systems, such as Bitcoin or Ethereum.

Although this provision was rejected, professionals in the crypto-asset sector are still keeping an eye on regulatory developments. The Committee on Economic and Monetary Affairs must indeed present by January 1, 2025 a proposal to include in the EU’s sustainable activity classification system “any crypto-asset mining activity that significantly contributes to climate change”.[8].

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