Significant changes in the cryptocurrency world have become a primary issue in the financial world in 2022: the fight against fraud, enormous losses, and new regulatory rules. In this article, we’ll break down all the changes in detail.
This current state of affairs is disappointing: regular account hacks and asset laundering due to user anonymity. Stablecoins are falling, so investors are facing a sharp loss of investment value without any responsibility from coin/token emitters, and even NFT is fluctuating on the verge of bursting. Phishing attacks are also active in the crypto industry.
Combined with other issues related to weak controls and lack of regulation, it leads to terrible chaos. Just look at the Terra Luna, which crashed this year and caused investors to lose significant amounts of money, and shows why non-negotiable crypto regulations are needed.
United with several factors such as a poor economy, burst market bubbles, pandemics, wars, geopolitical crises, and significant economic changes such as the move to the online industry, is heating up and leading to a bear market and consequently substantial financial losses.
The current market slowdown and the associated collapse of some projects and crypto assets have resulted in significant losses, exposed specific risks and vulnerabilities in protocols, highlighted systemic problems in the world of cryptocurrencies, and forced politicians to realize the necessity to regulate cryptocurrencies and decentralized finance ecosystem. Thus, what are the next steps?
Introduction of the Markets in European Crypto-Assets
How will MiCA benefit investors? The MiCA law holds providers accountable. If Crypto-Asset Services Providers (CASPs) lose or zero out investors’ assets, they will have to answer for it. Providers will also be required to maintain reserves to avoid collapse. The essential areas of regulation include consumer protection, anti-money laundering, paying taxes, financial stability, securities rules, and avoiding market manipulation by private parties.
If stablecoins are tied to non-European currencies, they will also have to open an office in the EU so that the European Banking Authority and national regulators can monitor their activities.
MiCA impact on exchange platforms
Maintaining consumer privacy and protection of consumer rights remains a priority issue. CEX regulatory policies are obligated to balance this issue with the need for innovative solutions.
Regarding DEX, the situation is only getting harder. Since DEX is autonomous and is not going to change that, we need to find the best option for both parties. MiCA regulations explicitly exclude decentralized finance from the proposed control. However, due to the massive volume of trading on DEX and the potential growth of DeFi, a certain set of guidelines will likely be adopted, and a minimum level of oversight of DEX will be established.
MiCA impact on NFTs
NFTs are not equal in intention. They should be reflected in regulations. Some NFTs may be classified as securities, but most other types raise very specific regulatory issues, including intellectual property. Otherwise, introducing regulation will kill innovations that come not from big companies, but from young creators or ordinary people who carry brilliant ideas but don’t want to get caught up in complying with all the rules.
Introducing new rules will solve the issues of IP ownership, authenticity, trademark, and copyright infringement issues.
The international level of regulation
Countries have begun to strengthen the regulation of cryptocurrencies in their regions. For example, Hong Kong will introduce licensing for cryptocurrency platforms under its anti-money laundering law. VASPs (Virtual Asset Service Providers) can expect to be regulated to the same standards as our institutional clients. The law recognizes VASPs as equal entities in the financial services industry.
The interests of the European Union are in security. Consideration is being given in line with Transfer of Funds Regulation (TFR) rules to introduce a mandatory guarantee from CASPs that the transfer includes both sender and recipient data. The only issue that arises is the protection of personal data. The special regulations of the EU General Regulation applied to ‘traveling’ information on CASP are not respected. The beneficial legislation regarding Stable Coins has been announced relatively recently. In particular, there are the STABLE Act, the TRUST Act, NYDFS statements, and proposed regulations from several high-profile pro-cryptocurrency senators. Binance’s subsidiaries in France, Italy, and Spain have also been officially registered as VASPs by National Banks. Once registered as a VASP, Binance can comply and meet AML/CTF standards. European partnerships with the Binance service are becoming more common.
Even one of the crucial cryptocurrency naysayers, the Bank of Russia, has warmed up to the placement of other digital assets and issued Atomize Russia, a blockchain platform, with its first cryptocurrency exchange license.
The UK Ministry of Finance has promised to publish proposals to regulate crypto-assets. According to ministerial statements, the government intends to take a soft approach. The offers are due later this year. Overall, it is interesting to watch the situation in London, as many politicians supporting the cryptocurrency market have also left their posts with the resignation of Boris Johnson. Will England’s stance on cryptocurrencies change with the arrival of the new Prime Minister and his team? We will find out closer to this autumn. Overall, it is interesting to watch the situation in London because with the resignation of Boris Johnson, many politicians supporting the cryptocurrency market also left their positions. Will England’s stance on crypto change with the arrival of the new Prime Minister and his team? We will know later this autumn.
American Federal agencies have already been instructed this March by Joe Biden to develop a regulatory framework for cryptocurrencies. It could include the creation of a digital dollar that would reduce the demand for private stablecoins. The process is in its early stages, but the industry has already mounted an intense lobbying campaign.
Can these rules protect Europeans from the consequences of the next market collapse?
There is a 90% chance that the answer will be positive. Main requirements for stable coins will be liquid reserves and obligatory responsibility for sharp drops, providing at least some guarantees to investors. Such innovations will help to reduce the number of fraud and phishing attacks, prevent hacking of accounts due to increased security and strengthen the control of AML offenders. What the fate of NFT in this scenario and how the market will change is anyone’s guess.
Overall, the positive aspects of the regulation will be the ability to conduct instant transactions, increase user security and the ability to combat fraud. And the addition of fiat trading pairs with euros will have a positive impact on liquidity. Platforms and trading venues will be liable in the event of a coin/token crash and investors losing money, and stable coin issuers will be required to have a liquid reserve to avoid another crash and sharp drop. Counterparties will also be responsible for accurately determining the purpose of the NFT, whether the token in question will be treated as a valuable asset or positioned as something else. This allows NFTs to be properly identified and controlled. In addition, it is mentioning saying that MiCA regulation will help reduce regulatory fragmentation in the EU.