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The European Commission reflected that “The future is digital!” and released the extended “Digital Finance Package”. The most popular part of the regulation, the “Markets in Crypto-Assets” (MiCA), aims to regulate all digital representation of value or rights which will be shared or stored electronically, using distributed ledger technology (DLT) or similar. The regulation will cover all EU countries and other companies and markets which are willing to do business with EU. The framework of the MiCA has been developed since 2018, has a 4-year grace period, and will be fully applicable and mandatory by 2024.  

The main objectives of the MiCA are as follows: 

  • Transforming the European economy for the next decades. 
  • Increasing the competitiveness of the Continents and closing the gap between Asian markets and Europe in digital currency area, especially with China. 
  • Providing financial stability of European markets and consumer protection. 
  • Filling legislative gaps for digital currency. 
  • Simplifying the digital currency market’s rules and increasing consumer safety. 
  • Increasing digital resilience. 
  • Illustrating the licensing process of crypto firms across the EU countries. 
  • Finally, leveraging the synergy between highly innovative startups and established firms. 

After the European Commission FinTech Action Plan published in early 2018, it has been seen that most crypto-asset types are out of the EU’s financial services legislation. MiCA provides extended definitions for crypto-asset services, crypto-asset service providers (CASPs), virtual asset service providers (VASPs), and asset-referenced tokens (stablecoins) and it aims to regulate all crypto-assets not covered as financial instruments by the 2nd Markets in Financial Instruments Directive (MiFID II). 

According to MiCA, crypto assets will be classified into 3 main groups: 

  1. Utility tokens that are issued with non-financial purposes to digitally provide access to an application, services, or resources available on DLT networks. 
  2. “Asset-referenced tokens” that aim to maintain a stable value by “referencing several currencies that are legal tender, one or several commodities, one or several crypto-assets, or a basket of such assets” and subsequently act as a means of payment to buy goods and services and as a store of value.
  3. “e-money tokens”: crypto-assets with a stable value based on only one fiat currency that aims to function similar to electronic money (replacing fiat currency in payments), as defined in the EU’s Directive 2009/110/EC.

The proposed regulations will be applicable to any non-European crypto-asset service provider (CASP) seeking to market to EU clients. Among the requirements will be a need for a legal entity in an EU country and a license. There are other potential requirements such as additional licensing for what is deemed to be advisory functions, depending on the type of activity undertaken. This is certainly not a framework that only affects the EU, it will have global repercussions. 

We will analyse different components of MiCA in the articles to be published in the next few weeks. For any further questions, please reach us via or visit our CryptoIndexSeriesTM Platform for a better analysis of the crypto market space.       

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