The introduction of new European Union (EU) crypto regulations, scheduled to take effect by the end of this year, is already making waves in the digital asset market. These regulations particularly impact stablecoins such as Tether’s USDT, which have been delisted by many crypto exchanges across the EU in an effort to align with the Markets in Crypto-Assets Regulation (MiCA). While the primary objective of these regulations is to enhance oversight and combat financial crimes like money laundering, some crypto experts express concerns that the intended outcomes may not be fully realized, and market activity could be negatively impacted.
Could MiCA Hamper Market Liquidity?
Industry leaders in the crypto space caution that the MiCA regulations may inadvertently lead to reduced market liquidity, potentially making the EU a less appealing destination for digital asset traders during a pivotal period. Usman Ahmad, CEO of Zodia Markets, highlights that the exclusion of USDT, a highly liquid stablecoin, narrows the choices available to clients within the EU. Stablecoins like USDT play a crucial role for crypto traders by facilitating the transfer of funds, enabling cross-border transactions, and aiding in the settlement of traditional assets. Nonetheless, concerns have been raised about their misuse in illegal activities, such as the recent exposure of Russian networks using USDT for illicit purposes. In response, Tether has condemned these illegal practices and reiterated its dedication to preventing such activities.
MiCA Requires Stablecoins on CEXs to Have E-Money License
MiCA mandates that all stablecoins listed on centralized exchanges must be issued by a company holding an e-money license as part of efforts to strengthen oversight of this asset class. Issuers are required to maintain up to two-thirds of the reserves supporting their tokens with an independent bank and diligently monitor all transactions conducted for payment purposes. While Circle has secured this license, Tether has yet to obtain it, possibly leading to its delisting by December 30. Despite MiCA’s implementation, there remains a need for enhanced tools to effectively track illegal transactions, a capability that is currently not yet available. Although USDT has been implicated in unlawful activities, Tether is actively seeking to address this issue through a newly forged partnership aimed at combating financial crimes.
Global Regulatory Dynamics and Market Impacts
Amid these regulatory shifts in the EU, the global crypto landscape is witnessing contrasting developments. With President-elect Trump’s recent victory, there is growing anticipation that the United States may adopt a more crypto-friendly regulatory stance, potentially igniting a market rally. In stark contrast, Europe is experiencing a downturn in crypto investments, with venture capital funding in crypto startups expected to hit its lowest point in four years. This situation raises concerns that Europe may lag behind in the rapidly evolving crypto market.
Encouraging Signs
Despite the challenges, there are encouraging signs on the horizon. Crypto ownership within the euro area has more than doubled, reaching 9% since 2022, although the European Central Bank has cautioned that this increase may be influenced by changes in survey methodology. Nevertheless, the removal of Tether (USDT) from platforms in the EU is anticipated to significantly impact liquidity, given that USDT boasts the most trading pairs globally. Traders are likely to encounter disruptions as they transition from USDT to alternative stablecoins or fiat currency pairs. Some exchanges, such as OKX, have already observed a shift among traders towards fiat pairs instead of other stablecoins.
