eus-markets-in-crypto-assets-mica-law

Why in the News?

As per recent news, The Markets in Crypto-Assets (MiCA) law of the European Parliament is the first detailed regulation for cryptos, and expect it to be a trendsetter for crypto regulation globally.

What is MiCA Legislation?

  • The MiCA law is in the quest to address issues like money laundering, protection of consumers and investors, the responsibility of crypto firms, stablecoins, and the environmental footprint of crypto mining.
  • It would control the “wild west” of crypto assets and facilitate legal certainty for those issuing crypto assets while securing high standards for investors and consumers.
  • There is the exclusion of non-fungible tokens, but the EU might make horizontal legislation for NFTs in 18 months, after a discrete assessment.

How will MiCA regulate stablecoins?

  • The effectiveness of stablecoins, which profess to be less volatile than other cryptos, came into position after the crash of some crypto-currencies.
  • The MiCA would decree that the stablecoin issuer keep minimum liquidity to give for unexpected large withdrawals by users, and the reserves must also be saved from insolvency.
  • The European Banking Authority (EBA) is asked to direct stablecoins, and the law asks stablecoin issuers to provide assertion to  investors  free  of  charge.
  • Besides, large coins which are used as a means of payment will be sealed 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 firms will need to state their environmental and climate footprint.
  • The European Securities and Markets Authority will create regulatory scientific merit on methodologies, content, and presentation of any such information.
  • The EC will also have to showcase a report on the impact of crypto assets on the environment.
  • It would establish mandatory minimum sustainability standards for mining mechanisms, especially the proof-of-work system which uplifts overall computing power.

Will it affect Indian regulations?

  • India’s crypto regulations are a larger setback in the current scenario.
  • Industry executives and experts say the government and industry are more focused on taxation and revenues.
  • India inflicted a 30% tax on income from the transfer of cryptos from April and charged a 1% tax deduction at source from 1 July.
  • This, along with the whole bear market, has deliberate trading volumes, and revenues of crypto exchanges.
  • Indian regulators are also expected to review the rules being developed in the US before taking a real decision.

Conclusion

  • Stablecoins are cryptocurrencies where the value is outlined to have pined to a cryptocurrency, fiat money, or exchange-traded commodities (such as precious metals or industrial metals).
  • Advantages of asset-backed cryptocurrencies are that the coins are stabilized by assets that alter outside of the cryptocurrency space and that the underlying asset is not correlated, minimizing financial risk.
  • Bitcoin and altcoins are majorly correlated so that cryptocurrency holders cannot abscond from widespread price fall without exiting the market or taking shelter in asset-backed stablecoins.