Globally there is much going on when it comes to bitcoin. In El Salvador bitcoin is legal tender, India made bitcoin a taxable asset. In Lugano, many merchants accept bitcoin and municipal taxes can be paid with it. All these new options and opportunities go hand in hand with new local regulations.
If you’re a beginner to bitcoin and based in Europe you might already know that MiCA, which stands for Markets in Crypto-Assets, is Europe’s regulatory framework. Though MiCA has a focus on all cryptocurrencies, for this interview, we mainly focus our thoughts and questions on bitcoin.
To get a better understanding of MiCA, I reached out to Iulianna Romanchyshyna, Dr. iur. She’s an EU Policy Expert with extensive knowledge on crypto regulation. In an interview she shared her answers and insights regarding the questions I had.
What is MiCA about?
The Markets in Crypto-Assets (MiCA) regulation is a framework designed to oversee cryptocurrencies within Europe. You pronounce it as “Mie-Kah”. MiCA has two key parts: one focuses on stablecoin regulation, and the other on regulating crypto service providers. Crypto service providers are a wide array of entities, including exchanges, wallets, custodians, and advisors. The goal of MiCA is to give businesses a sense of regulatory certainty, enabling them to operate under clear and consistent rules.
One of the features of MiCA that stands out is the concept of "passporting." This allows entities licensed in one EU member state to offer their services across all member states. The aim is to simplify operations and remove the complexities caused by varying national regulations.
For investors MiCA increases protection by setting strict standards around cybersecurity, consumer rights, and transparency. Its goal is creating a safe and trustworthy atmosphere for interacting with cryptocurrencies.
What is the impact of MiCA on Bitcoin?
MiCA doesn’t directly regulate bitcoin itself. It does have an effect on the bitcoin market because it’s setting rules for crypto asset service providers, like exchanges and wallets. These services are essential for buying and managing bitcoin, so even though the regulation doesn’t focus on bitcoin directly, it influences the infrastructure and services that support its use.
Say Bitcoin is purchased peer-to-peer, does MiCA play a role there?
Transactions that happen peer-to-peer or through decentralized exchanges aren’t directly regulated by MiCA. The same goes for unhosted wallets managed via smart contracts, where users keep control of their private keys; these also fall outside MiCA's regulatory reach. However, there are some nuances and specific situations that might come into play depending on the context.
How does MiCA help beginners new to the crypto market?
It’s important for users to know that MiCA is all about transparency, especially when it comes to on-ramping and off-ramping. This transparency will bring trust and accountability throughout the ecosystem.
MiCA wants to protect investors by tackling risks like financial mismanagement in exchanges and other crypto service providers. Service providers must have a license, to ensure they meet specific standards. This brings transparency and accountability, as users are informed about potential risks. MiCA also enforces complaint handling structures to address user concerns effectively. Measures are in place to prevent market abuse and guarantee that client funds remain separate from operational funds, for increased investor protection.
The FTX situation, for example, highlighted that the risks of mismanagement and lack of oversight can severely impact consumers. Regulations like MiCA will address these concerns and take steps to improve consumer trust and security.
Is there a link between MiCA and taxation?
MiCA itself doesn’t impose new tax obligations; taxation remains under the jurisdiction of individual national authorities within the EU. However, MiCA aims to standardize crypto-related terminology and enforce robust reporting and record-keeping by service providers. This could help tax authorities access necessary information more easily. Eventually tax policies could possibly be streamlined in the long term.
Additionally, the EU's DAC8 directive mandates the exchange of information on crypto holdings and transactions to further enhance clarity and compliance. All these measures should eventually create a more transparent and accountable framework for crypto assets in the EU.
Bitcoin transactions are public and transparent and it has a decentralised nature, it’s not controlled by an authority. MiCA on the other hand is about providing transparency through a centralised authority. Will MiCA make bitcoin investments safer or riskier?
It’s interesting to talk about the balance between decentralisation and regulation. Bitcoin remains decentralised, as its infrastructure isn’t controlled by any central authority. The MiCA regulation doesn’t focus on bitcoin or its decentralised nature — its focus is on centralised entities like exchanges and custodial wallets. Both are important for on-ramps and off-ramps, where users interact with fiat currencies or crypto assets. Without proper oversight, these centralised services could be a risk to investors. For example through mismanagement or lack of transparency. MiCA wants to combine trust and accountability without undermining the core principles of decentralisation. In fact, MiCA explicitly excludes "fully decentralised" activities from its scope. There is a bit of uncertainty as to what "fully decentralised" means, so further guidance would be needed.
Recap
The Markets in Crypto-Assets (MiCA) regulation introduces a unified framework for cryptocurrency operations within the EU. Once licensed in one member state, businesses can operate across all EU states, fostering cross-border opportunities. However, this primarily applies to businesses, not individual transactions, as crypto remains inherently borderless.
So just as we can send money across the globe, bitcoin transactions are borderless too. What is MiCA’s take on transactions from within the EU to outside the EU?
A key point of MiCA is its stance on foreign service providers. If a non-EU provider actively solicits EU clients, they must obtain a MiCA license. On the other hand, if an EU user independently seeks services from such a provider without solicitation, a MiCA license may not be necessary. This ensures consumer protection while limiting unregulated foreign actors' access to the EU crypto market.
In terms of transparency and accountability the crypto space is evolving in resemblance with traditional banking. While smaller transactions probably won’t face scrutiny, larger amounts—like 100.000 euros—are more likely to require disclosure of sources, especially for tax purposes. This makes it harder to move funds anonymously compared to years ago and aligns the crypto world more closely with established financial systems.
Will the transparency MiCA is aiming for have an effect on the price of BTC?
MiCA’s transparency is able to shape the crypto market by building trust and stability. Trying to predict bitcoin's price movements, on the other hand, is quite a challenge. The bitcoin price depends on a variety of factors. Elements like U.S. policies, economic changes, geopolitical tensions, and technological advancements all play significant roles in the price's volatility.
Would a business accepting Bitcoin as a means of payment require a MiCA license?
If a business only accepts crypto (e.g., bitcoin) as payment and doesn’t actively provide crypto-related services (like processing payments or operating an exchange), then obtaining a license is probably not necessary. Instead, the focus would move to tax compliance and accounting practices. Businesses would need to handle aspects like reflecting the fair value of bitcoin on their balance sheets and managing its volatility.
From December 30, 2024 the MiCA regulations fully applied to crypto-assets and crypto-asset service providers (CASPs); is the implementation complete?
Implementing MiCA comes with varying transition periods across EU countries where the previous national regime remains in force (so-called grandfathering). There are still some issues with the national authority's application of MiCA provisions. Eventually, all member states are expected to fully align with MiCA.
While the MiCA regulation is still in its early stages, the stakes for non-compliance are high. Enforcement of MiCA falls under the jurisdiction of national authorities. The consequences to non-compliance could range from suspension of activities to a ban on providing services. Financial penalties are substantial, they can even be a certain percentage of a company's total annual turnover. That’s why businesses are strongly encouraged to comply with MiCA requirements and obtain the necessary licenses to avoid these repercussions.
Explanations
Passporting means that a crypto-asset service provider (CASP) authorized in one EU member state can operate across the entire EU
Unhosted wallets are self custody wallets where users possess their private keys
Grandfathering is the transitional period that allows crypto-asset service providers (CASPs) operating under national laws to comply accordingly with MiCA
Important note
This article is strictly educational and for general information purposes. Consult a professional for financial advice tailored to your situation.
Sources
https://gfmag.com/economics-policy-regulation/el-salvador-drops-bitcoin-legal-tender/
https://cleartax.in/s/cryptocurrency-taxation-guide
https://www.greaterzuricharea.com/en/news/businesses-lugano-accepting-crypto-currencies https://bitcoinsuisse.com/news/city-of-lugano-accepts-crypto-payments
https://secuxtech.com/blogs/blog/hosted-vs-unhosted-crypto-wallets
Marilyn
