On May 31, 2023, Regulation (EU) 2023/1114 was published by the European Parliament and the Council concerning cryptoasset markets (Markets in Crypto-Assets or MiCA Regulation). The European Council's news article can be accessed via the following link: link.
This regulation directly applies to all European Union member states and affects services related to the crypto ecosystem.
The Regulation represents the world's first regulatory instrument to establish uniform requirements for (i) public offerings and admission to trading on a cryptoasset trading platform and (ii) cryptoasset service providers.
MiCA Regulation marks a dichotomy in the crypto ecosystem, aiming to regulate a product that by nature emerged as a challenge to the financial sector, seeking to create a form of electronic money without going through a financial institution.
Here you can find the original White Paper by Satoshi Nakamoto, creator of Bitcoin ("BTC"), outlining the theory of this cryptoasset and the proposed financial deregulation project.
Beyond delving into philosophical debates, MiCA Regulation is a novelty that positions the European Union as the first global region to deem it necessary to set limits on the crypto ecosystem and create regulation primarily focused on investor and consumer protection.
MiCA responds to the calls from various financial institution regulators who advocated for increased regulation of cryptoassets due to their volatility and risk.
An example of this warning is the joint statement issued in February 2018 by the Bank of Spain and the CNMV, reminding that cryptocurrencies (i) are not a means of payment, (ii) have very limited circulation, and (iii) experience significant value fluctuations (link).
The significant appreciation in the cryptoasset market has led to the emergence of numerous service providers and new investors (both professional and non-professional) seeking high returns.
The supervisor was correct in warning about the value fluctuations. Evidence of this can be seen in the price of Bitcoin (the cryptocurrency with the highest market capitalization) from 2018 to today, rising from just $6,000 per BTC to a peak of $68,990.60 in November 2021, and stabilizing around $26,000 in September 2023 (Source: Investing.com).
In this scenario, various Fintech companies have capitalized on the increased market volume and opportunities, taking advantage of the limited regulatory burden to operate in a sector that, despite experiencing a downturn known as the "Crypto Winter," remains on the rise.
Generally speaking, the path of these fintech companies involved in the crypto sector has not been aligned with major financial institutions, which view cryptocurrencies as highly risky due to their inherent nature and lack of regulation.
Most Spanish credit institutions echoed the supervisors' warnings about the need to regulate these assets and the risk involved in treating them as investment products (see communications issued by BBVA and Banco Santander).
Sin embargo, el Reglamento MiCA cambia por completo el paradigma regulatorio del ecosistema crypto europeo y busca ofrecer un marco más seguro, supervisado y controlado de la operativa con criptoactivos.
Una de las principales exigencias del Reglamento es la autorización requerida a todos los proveedores de servicios de criptoactivos para operar en la Unión Europea.
However, the MiCA Regulation completely changes the regulatory paradigm of the European crypto ecosystem and aims to provide a safer, supervised, and controlled framework for operating with cryptoassets.
One of the main requirements of the Regulation is the authorization required for all cryptoasset service providers to operate in the European Union.
This requirement had already been proposed in Spain with the transposition of the Fifth Directive on Anti-Money Laundering (link to the Official State Gazette) and the creation of the Register of virtual currency exchange service providers and custodian wallet service providers.
Now, any fintech intending to provide cryptoasset services must apply and register at the Bank of Spain and comply with the suitability and probity criteria required by the supervisor. Soon, Summons Abogados will publish various articles detailing the requirements set by the Bank of Spain to access this register of providers.
Despite the increased regulatory burden, this requirement has contributed to creating a more homogeneous and transparent environment for investors and consumers.
Perhaps regulatory innovations have favored the entry into the market of more traditional financial institutions focused on products other than cryptoassets.
An example of this could be BBVA's inclusion in its portfolio of a bond that replicates Bitcoin's performance (news here), the creation of Spain's first cryptocurrency fund by A&G registered with the CNMV (here), or Prosegur Crypto's authorization to provide cryptocurrency custody services (here).
There is still much work to be done, but it seems that cryptocurrencies are here to stay. Neither the Crypto Winter nor the relative price stabilization - albeit downward - have been able to diminish this innovative "digital representation of value" (as defined by the MiCA Regulation for cryptoassets).
On the contrary, MiCA presents a challenge to all fintech and other market operators and aims to create a more transparent, secure, homogeneous, and ultimately mature and developed global market.
