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Market in Crypto Asset Regulation - my POW

On Friday May 12th I attended an interesting conference at Bocconi University dedicated to the in-depth analysis of the recent MiCA regulation, or the Market in Crypto Assets Regulation, but I preferred to wait for the final approval of the European Parliament, which took place on May 31st, before publishing this article.

The first thing I learned is that it is not called "Micar", as we used to do, but "MiCA", as specified on the first page of the document of over 400 pages of legislation.

The conference, organized by my friend Filippo Annunziata, was truly impressive, with academics and researchers from all over Europe and also the presence of regulators in the final round table.

The "Minestrone" (vegetable soup), as it was pleasantly described by a person who I will not mention, is a regulation that puts Europe in a potentially advantageous position compared to the rest of the world.

I specify "potentially" because I still vividly remember the approval of the VFA, or the Virtual Financial Act, which came into force in 2018 in Malta, which at the time placed "The Rock Island" at the forefront in Europe for the regulation of digital assets, and it was one of the reasons why I moved the center of my management activities to Malta.

At the time, more than three hundred applications were made to register a management company or intermediary linked to the VFA, one of which was ours, but today, after more than four years of regulation, the companies actually authorized can be counted on the fingers of one hand.

In a globalized world, in fact, if the legislation protects the entrepreneur in some way, it will be seen positively, but if instead it is a jumble of limitations that are not imposed in other jurisdictions, and there is no counterpart, obviously an entrepreneur will choose the jurisdiction that brings him the most advantages or at least limits costly duties.

Mind you, Diaman moved to Malta precisely to work in a regulated environment, which allows her to do business and be competitive against foreign competition; those who want to do this job seriously also want to work peacefully, without the anvil of a regulator who could block the activity from one day to the next because there is no clear regulation in this regard.

Honestly, albeit with some perplexities and still obscure points, I am happy that the MiCA has been approved, because the world of digital assets deserves to be elevated and considered a serious environment that brings great benefits and not, as it still often appears today, i.e. like a jungle teeming with dodgy people looking for chickens.

Any regulation imposes limitations, and these limitations inevitably reduce the room for maneuver, but I believe they are necessary to clean the jungle and turn it into a beautiful well-kept garden, where people can stop pleasantly without worries.

The things I take home are mainly the following:

“same, same, but different” a nice way to describe the similarities between MiFID and MiCA from a regulatory point of view; security tokens fall within the perimeter of the MiFID, while utility tokens, ARTs (Asset Referenced Tokens, Non Fungible tokens (not in all cases) and E-money Tokens fall under the MiCA.

The current structure for investment funds does not change following the entry into force of the MiCA.

The current financial intermediaries will simply have to notify the willingness to operate in the crypto assets sector and demonstrate that they have the principals, experience and procedures suitable for the management of these assets which are generally more complicated than traditional assets.

It was well highlighted by the speakers that the risks for the incumbents (large intermediaries, such as banks) will increase and the advantages in relation to the risks will have to be carefully evaluated to understand if the game is worth the candle.

As can be seen from the slide below, in fact, there have been many cases of stolen assets, sometimes by employees or by someone who has managed to take possession of the private keys, for which an additional level of risk is introduced in the management that must be compensated gives more opportunities to be taken into consideration by incumbents.

Fig. 1 - assets stolen or lost over the years

In terms of anti-money laundering, the safeguards will in fact be very similar to what the current regulations envisage for traditional assets, even if greater safeguards will be needed.

The obligation for wallet providers, which are in fact technology providers and not intermediaries, to subject their users to KYC is very perplexing

Finally, one thing whose logic I did not fully understand and I am curious to see how it will end: a limit of €200 million per day has been introduced for transactions in stablecoins; a prohibition that sounds unconstitutional to me, and which introduces for the first time ever into European regulations a cap beyond which a company cannot go, effectively blocking any initiative in the bud, any initiative that could hope to compete with the big international players.

I suspect that this rule was introduced to prevent any operator from annoying the banks, but in fact it rules out that there may be companies in Europe that will compete with the big stablecoins such as Tether and USDC, which already intermediate over 5 billion of transactions per day, therefore about 25 times the limit allowed by law.

This rule seems to me to be in contradiction with the desire to regulate the market before others to give European companies a competitive advantage, when in fact they clip the wings of any business initiative, leaving the market in the hands of companies domiciled in some shady jurisdiction.

Furthermore, this rule would violate the principle of technological neutrality: the different underlying technology would impose different rules on operators with respect to what is permitted with the systems currently in use.

The Digital Euro has not been received in MiCA, of which to find out more we will have to wait for the end of the preliminary phase which will end in October.

Finally, I confirm my positive mood on MiCA, because a sector is finally being clarified and formalized which too many times has been singled out by journalists and detractors as a Ponzi scheme, while in reality the world of digital assets represents the future and offers unprecedented opportunities for innovation for the money and investment sector.


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