The Markets in Crypto-Assets (MiCA) law of European Parliament is the first comprehensive regulation for cryptos, and some expect it to become a trendsetter for crypto regulation globally.

What is MiCA Legislation?

• The MiCA law seeks to address concerns like money-laundering, protection of consumers and investors, accountability of crypto firms, stablecoins and the environmental footprint of crypto mining.
• It would regulate the “wild west” of crypto assets and provide legal certainty for those issuing crypto assets, while ensuring high standards for investors and consumers.
• It also excludes non-fungible tokens, but the EU may make a horizontal legislation for NFTs in 18 months, after a separate assessment.

How will MiCA regulate stablecoins?

• The efficacy of stablecoins, which claim to be less volatile that other cryptos, came into question after the crash of some crypto-currencies.
• The MiCA would mandate that stablecoin issuers maintain minimum liquidity to provide for sudden large withdrawals by users, and the reserves must also be protected from insolvency.
• The European Banking Authority (EBA) has been brought in to supervise stablecoins, and the law asks stablecoin issuers to provide claims to investors free of charge.
• In addition, large coins which are used as a means of payment will be capped at €200 million worth of transactions per day.

How will the new law regulate money laundering?

• MiCA requires the EBA to maintain a public register of non-compliant crypto asset service providers (CASPs).
• Additional checks will be required, in line with the EU Anti-Money-Laundering (AML) framework.

How does it address green concerns?

• Under MiCA, crypto companies will be required to declare their environmental and climate footprint.
• The European Securities and Markets Authority will develop regulatory technical standards on methodologies, content and presentation of such information.
• The EC will also have to provide a report on the impact of crypto assets on environment.
• It would introduce mandatory minimum sustainability standards for mining mechanisms, especially the proof-of-work system which raises overall computing power.

Will it affect Indian regulations?

• India’s crypto regulations seem to have taken a back seat at the moment.
• Industry executives and experts say the government and industry are more concerned about taxation.
• India levied a 30% tax on income from transfer of cryptos from April, and added a 1% tax deduction at source from 1 July.
• This, along with the overall bear market, has depressed trading volumes, and revenues of crypto exchanges.
• Indian regulators are also expected to consider rules being developed in the US before taking concrete decisions.

Back2Basics: Stablecoins

• Stablecoins are cryptocurrencies where the price is designed to be pegged to a cryptocurrency, fiat money, or to exchange-traded commodities (such as precious metals or industrial metals).
• Advantages of asset-backed cryptocurrencies are that coins are stabilized by assets that fluctuate outside of the cryptocurrency space, that is, the underlying asset is not correlated, reducing financial risk.
• Bitcoin and altcoins are highly correlated, so that cryptocurrency holders cannot escape widespread price falls without exiting the market or taking refuge in asset backed stablecoins.
• Furthermore, such coins, assuming they are managed in good faith, and have a mechanism for redeeming the asset(s) backing them, are unlikely to drop below the value of the underlying physical asset, due to arbitrage.

UPSC 2023 countdown has begun! Get your personal guidance plan now! (Click here)

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now