Welcome back!
This week, I wanted to dive deeper into one of the ideas discussed at the Harvard Blockchain Conference. As the panelists seemed to agree on, the US needs to become more proactive in its legislation or else it will experience businesses leaving the country and a weakening of the US dollar. I’ve discussed these latter issues before, but I wanted to look at the EU's crypto regulation, and how it compares to what the US is doing.
I hope you enjoy, and see you next Sunday.
-Katja
Europe faces off with the US in crypto regulation
The battle over crypto regulation continues, with the latest development coming from the EU. A crypto regulatory package called Markets in Crypto Assets (MiCA) has passed the Parliament, creating the first major push in Europe regarding digital asset regulation.
Although the document reads in a similar way to President Biden’s executive order, it is an important step in the discussion around regulation and, on a larger scale, represents the general differences between the US and Europe in approaching such decisions.
As compared to the US, the EU issues regulation proactively as opposed to reactively. However, in creating regulation, legislators must prioritize innovation, policy, or freedom. This is another point of difference between the US and Europe.
To foster innovation, businesses need to not be afraid to take risks and create new products or offer new services.
To have effective policies, legislators need to anticipate problems and potential threats to consumers and issue legislation that will prevent and protect.
To ensure freedom, people must be left to make informed choices, even if that means taking losses or suffering failures.
These three ideas have complicated links, so governments must choose one or two at the expense of the others. Looking at MiCA, it seems that the EU has chosen to prioritize policies while the US has chosen innovation.
First introduced in 2020, MiCA sought to complement anti-money laundering (AML) rules and increase consumer protections and financial stability in Europe. As CoinDesk described,
“The EU’s landmark MiCA regulation seeks to offer a single license for crypto providers to operate across the bloc’s 27 member countries, in exchange for measures intended to protect investors and safeguard stability.”
Recently, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) voted to advance the Markets in Crypto Assets (MiCA) regulatory package. This comes after weeks of debates surrounding various provisions including a proposal to ban proof-of-work crypto assets (like Bitcoin and Ethereum) due to concerns over their energy usage.
Since its passage, MiCA will now be subject to a set of informal discussions (called trilogues) among the three blocs of government: the Commission, Parliament and Council. Agreements reached during these talks will need formal approval from each institution. Historically, major changes will likely not occur. During this time, legislators will also finalize details surrounding the crypto oversight committee, decentralized finance (DeFi), and non-fungible tokens (NFTs).
On the one hand, what the EU has done sounds like what the crypto industry has been wanting. But on the other hand, such a comprehensive package cannot keep up with the rapid advancements of this new technology and may even hinder future innovation. For example,
“DeFi has seen a surge recently, and some EU lawmakers have pushed to allow decentralized autonomous organizations (DAO) to issue new cryptocurrencies – something that wasn’t even on the agenda earlier when the MiCA law was first discussed.”
Europe’s swift movement on crypto regulation stands in stark contrast to what’s happening in the US, which I cover almost every week. According to Congress, the US wants to remain an innovation hub for crypto. It wants to help the industry by creating clear and transparent laws. Despite this, a lack of understanding of crypto is causing clashes in the House and Senate and slowing down the regulatory process altogether.
The US and EU have different approaches to crypto in terms of how to regulate. Both approaches have their costs and benefits, but it seems like the right solution could be found somewhere in the middle.