MiCA’s Stablecoin Cap Regulation May Stall Crypto Adoption

Jimmy Aki
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The European Union’s Markets in Crypto-Assets (MiCA) has imposed a $219 million daily cap on stablecoins like $USDT and $USDC.

However, a rising group of participants in the crypto community have expressed their concerns about these restrictions and are calling for a reconsideration of the overall framework.

MiCA Introduces Daily Limit Regulation

MiCA’s introduction of a transaction cap on stablecoins has raised concerns among crypto stakeholders, who argue that it stifles crypto adoption and innovation.

The groundbreaking MiCA legislation was passed on May 31, 2023, by European Parliament President Roberta Metsola and Swedish Rural Affairs Minister Peter Kullgren.

This marks a significant milestone as it introduces the world’s first regulatory guidelines specifically tailored for cryptocurrencies.

The global crypto community has generally embraced this legal stride, recognizing its importance in establishing regulatory clarity amidst the rapidly evolving digital asset landscape.

However, specific provisions within the MiCA legislation, particularly the daily transaction cap of 200 million euros (equivalent to $219 million) imposed on private stablecoins like $USDT and $USDC, have sparked controversy.

In light of this, legal experts Chander Agnihotri and Rachel Cropper-Mawer, who serve as the legal director and partner, respectively, at global law firm Clyde and Co., have expressed concerns.

They urged the regulator to reassess these limits because they might impede the use of large stablecoins.

Stablecoins, primarily designed to mirror the value of fiat currencies, notably the U.S. dollar, have emerged as a practical solution to address the volatile price fluctuations associated with digital currencies like $BTC.

However, the current state of the crypto market has become even more intricate due to recent periods of instability.

One significant event was the severe collapse of Terra’s algorithmic stablecoin, TerraUSD ($UST), in May 2022.

Another incident was the temporary de-pegging of $USDC following the collapse of Silicon Valley Bank in early 2023.

These incidents have given regulators compelling reasons to tighten their oversight of private stablecoins.

While the 200 million euro daily transaction limit does not impose an outright ban, issuers must cease further issuance activities and cooperate with regulators once the limit is surpassed.

This ensures that transactions remain within the prescribed cap.

This particular aspect of the legislation has garnered criticism due to its broad and far-reaching implications.

Nevertheless, the overall response to MiCA has been predominantly positive, with many considering it a significant development in advancing the cryptocurrency sector as a whole.

MiCA’s Impact on the Crypto Industry

MiCA represents a significant game-changing development for the European Union (EU) crypto industry.

Previously, crypto companies operating within the EU had to individually approach every national regulator to cater to the entire EU market.

Various countries within the EU, such as Germany, Austria, and France, have already established specific licensing frameworks for cryptocurrencies. In contrast, others, like Ireland, only required simple registration for anti-money laundering purposes.

On the other hand, certain countries lacked any regulatory structure for crypto businesses altogether.

This complicated situation of having 27 different sets of regulations created an expensive and burdensome process for navigating the national regulatory landscape.

Undoubtedly, this situation has hindered the growth of EU startups and limited their competitiveness compared to their counterparts in the United States and Asia.

However, with the implementation of MiCA, all 27 member countries will be subject to similar binding EU requirements.

This means that when a company obtains a MiCA license in one country, it can “passport” that license and offer its services throughout the entire EU single market.

Implementing MiCA would prevent offshore and unregulated companies from actively targeting EU consumers.

Meanwhile, the rules governing the solicitation of reserves are expected to be more stringent than those for other financial service providers in traditional markets.

This expectation arises from recent incidents like the FTX crash, emphasizing the need for stricter regulations, especially for foreign businesses attracting EU customers who take their initiative.

As a result, MiCA-regulated crypto businesses are poised to capture a significant market share within the EU to surpass their offshore and unregulated competitors.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.