The crypto world has witnessed many downfalls in the recent past. Globally revered crypto exchange FTX, a pioneering exchange in many ways that had raised US$400 million at a valuation of US$32 billion in January 2022, filed for bankruptcy in November.
Terra, a payments app in South Korea that rose to a US$60 billion crypto ecosystem, suffered phenomenal losses when its US$18 billion algorithmic stablecoin terraUSD (UST) depegged in May 2022. The terraUSD depeg event also impacted LUNA, the companion token of terraUSD, following terraUSD’s crash.
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Amid all of these events, the EU was deliberating on introducing a union-wise regulation. Set to come into effect in 2024, the Market in Crypto Assets Regulation, or MiCA, started as a collective initiative between three entities: the European Commission, the European Parliament, and the Council of the European Union.
Hailed as the first comprehensive regulatory regime in the world with a specific focus on crypto assets across Europe, a continent responsible for 25% of the global crypto market, MiCA is expected to offer a regulatory framework to a host of crypto services. The regime will look into non-stablecoin and stablecoin offerings, publishing of transferable securities, authorization for crypto-asset services, and crypto-exchange dealings.
While the EU looks at MiCA as an effort to streamline the crypto industry, many policymakers, analysts, and experts are anxious about MiCA’s apparent effectiveness.
The anticipation for MiCA is already tempered with much caution and anxiety. The Chair of the European Banking Authority, Jose Manuel Campa, has already admitted to blind spots in the package. For instance, the EU regulation will not be of much use if consumers opt for interactions with offshore crypto firms.
There’s also a concern about the lack of expertise among EU officials to ensure adequate compliance with MiCA’s provisions once it comes into effect.
Once MiCA gets introduced, only one country can authorize a crypto-services company to earn exposure throughout the bloc. It raises concerns, especially if a particular country's national financial supervisory authority is not thorough with its scrutiny and follow-up. In this case, faults committed by one country’s authorities may adversely impact the entire union.
The impact of MiCA will also be felt by the taxation and transfer pricing mechanism existing across the union. Tax administrations in member countries will have to ramp up their operations to keep crypto asset service providers under check. The tax authorities will have to proactively assess the operating structure of these providers to gauge the potential impact of MiCA when implemented.
The process will be burdensome for service providers who are willing to comply. They might need to restructure their operations, identify value drivers afresh, characterize entities in the value chain from scratch, and take a fresh look at their intangible assets and intragroup transaction prices.
Also, once the MiCA arrives, service providers must comply and seek authorization in accordance with the new regulations and laws in line with the guidance provided by OECD CARF.
With all these doubts and concerns in place, it remains to be seen how effective a change MiCA brings to the existing system.
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