What the EU’s new crypto asset regulation means and how it will transform 2024

In 2024, the European Union will become the first major jurisdiction in the world to formally adopt a series of comprehensive laws and regulations governing the cryptocurrency sector.

Named the Markets in Crypto Assets regulation, or MiCA for short, its arrival has been broadly greeted with enthusiasm. The new system establishes harmonised rules for crypto assets at EU level, thereby providing legal certainty for crypto assets not covered by existing EU financial services legislation.

Ultimately, it is designed to enhance protection of consumers and investors as well as financial stability, and thus promote innovation and the use of crypto assets.

But what impact will it really have? Is it as transformative as the hype generated so far suggests?

I am certainly in the optimists’ camp. In my eyes, the MiCA regulations look set to revolutionise the cryptocurrency landscape, not least because they provide a framework for individuals and institutions to engage in crypto transactions with clear guidelines on taxation and accounting.

Clarity means a huge amount in this business. Because of the clarity MiCA delivers for all stakeholders, I expect to see increased adoption of crypto assets – this could be individuals looking to diversify their wealth or corporations embracing Web3 applications and accepting payments from their clients and customers in cryptocurrencies. The two will go hand in hand. As more individuals own crypto money, companies and banks will seek to make it easier for them to use it to acquire products and services. Additionally, I believe the rise of audited exchanges will also have a positive impact on crypto usage, as it will help build trust in the system.

What does MiCA mean for privacy?

As is the case with most new regulatory frameworks and policy announcements, there are some important caveats. Indeed, MiCA shouldn’t be viewed as a silver bullet-style solution that will make for the perfect crypto ecosystem across the EU jurisdiction.

The main issue that remains is privacy. There are ongoing, valid concerns that will need to be addressed in the near future as we adjust to the MiCA regime. Despite the regulatory framework and its clear benefits around certainty and establishing a clear set of rules to play by, questions remain about how to ensure privacy will be safeguarded. As we advance through 2024, ongoing attention will need to be devoted to addressing potential privacy pitfalls (and others) associated with crypto assets.

Banks, as they step up their engagement with crypto, are likely to transition to public blockchains for operational efficiency reasons. While those public blockchains will be embedded with privacy features, this represents a marked shift away from the current setup, which sees many banks create proprietary private blockchains, largely because it is the most cyber-secure option.

However, this approach is expensive and lacks interoperability, presenting challenges in potential mergers and with expanded uptake of crypto-based activities.

At present, the financial landscape and its existence within the tokenized securities sphere is characterised by banks and other sector organisations operating in silos; a situation born out of the preference for proprietary private blockchains.

However, what we are now seeing is a growing desire for interoperability. In the immediate term, this will involve the greater use of interoperable functions using a bridge. The next phase of evolution is where things start to get more exciting. As adoption of crypto assets grows, there will be a stronger case for a universal approach between banks – an all-public blockchain that balances the essential elements of transparency and privacy.

That said, I do not expect the next phase to take off in 2024. Instead, by the end of 2024, there may be some pilots designed to embrace a universal blockchain of some kind. The finance sector is historically slow to move, but at the same time it is home to some of the brightest technological minds, and this gives me confidence that it will be the first pilot of the next phase.

What can we expect to see in 2024?

The implementation of the MiCA regulations is arriving in tandem with a broader global movement that is gathering momentum. Through 2024, I expect to see this ramp up in the form of transactional pilot programs which will serve to first heighten the adoption of crypto, and then explore the possibilities of a truly interoperable blockchain system. 

The key to significantly increased crypto uptake in 2024 is building trust. If we look to markets such as the UAE and Singapore, we see strong examples of already progressive regulatory environments and likely contenders to adopt a trust-building approach moving forwards.

Smaller markets in Europe are also aiming to seize an advantage over traditional powerhouses such as the United States – Switzerland and Luxembourg, for example, are actively embracing the evolving crypto landscape.

Whichever corner of the globe we look, the stage appears set for a transformative shift in the financial sector. Across the EU, MiCA regulations should act as a catalyst for widespread cryptocurrency adoption and innovation, while also providing a template for other regions and markets to follow.