MiCA: EU Regulation Impacts Crypto Liquidity and Innovation

• MiCA creates barriers for crypto startups and innovation in the EU.
• Dollarized stablecoins continue to dominate global markets.
• MiCA regulation will impact liquidity and competitiveness in the crypto market.

The European Union (EU) is set to introduce the Markets in Crypto-Assets Regulation (MiCA) on January 1. The regulation aims to establish a unified legal framework for cryptocurrencies across the 27 member states, seeking to protect consumers, increase transparency and to secure market stability.

“MiCA is a significant step towards ensuring the responsible evolution of the cryptocurrency market,” said Ari Redbord, Head of Legal and Government Affairs at TRM Labs. “It demonstrates the EU’s commitment to creating a balanced environment that encourages innovation while protecting stakeholders.”

Despite its promise, MiCA also faces criticism. Strict rules could discourage innovation and harm competitiveness in the European crypto sector.

Main Pillars of MiCA

The focus central MiCA’s goal is to create a transparent and secure environment for crypto assets, with particular attention to stablecoins, which are pegged to fiat currencies such as the U.S. dollar or euro. Under the new guidelines, stablecoin issuers will need to have electronic money licenses and reserves held mostly in liquid, low-risk assets, with at least 60% of reserves in these formats.

These rules are intended to reduce financial instability, but they create challenges for issuers. Exchanges like Binance and OKEx have already removed Tether (USDT) from their platforms in Europe, while Circle has adjusted USDC to meet the new requirements. “MiCA’s reserve requirements become a barrier to the profitability of retail-oriented stablecoins,” noted fintech entrepreneur Anton Golub.

MiCA will also introduce a single licensing system, allowing companies to operate across the EU with a single permit. However, critics point out that high regulatory costs could hamper the growth of startups, limiting innovation.

Comparative Impact with the USA

As the EU seeks greater control, the United States is pushing ahead with crypto-friendly policies, driving innovation. Bitcoin has surpassed $100.000, while dollar-pegged stablecoins dominate global markets, in part due to the absence of stringent regulations like MiCA’s. “The market for euro-pegged stablecoins is tiny compared to dollar-pegged ones, and MiCA’s hurdles only widen that gap,” Golub said.

European regulations could hamper the flow of venture capital into the regional crypto sector, further hampering growth. European companies may seek less restrictive markets, jeopardizing the EU’s goals of positioning itself as a global leader in cryptocurrencies.

Consequences for the Market

The delisting of Tether (USDT) will reduce liquidity in the European market, and traders will have to look for alternatives. In addition, investors face challenges with high legal fees and mandatory reserves, which increase the risks for new projects.