Markets in Crypto-Assets Regulation (MiCA): The New Framework

Markets in Crypto-Assets Regulation (MiCA): The New Framework

Key takeaways 

  • Get to know how Markets in Crypto-Assets Regulation will be implemented for crypto investors by the European Union.
  • Learn about the assets that would come under MiCA regulation and craft your crypto project with Blockchain App Factory.

Blockchain technology’s decentralized nature provides security and privacy but poses regulatory challenges due to the absence of a central authority. The proposed 2020 Markets in Crypto-Assets (MiCA) regulation by the European Commission aims to address this by introducing a pioneering licensing framework. Its focus is on ensuring financial stability, safeguarding investors, and encouraging broader transformation within the crypto asset sector. In this article, we will dive deep into how MiCA regulation works.

What is the Market in Crypto-Assets Regulation (MiCA)?

The Markets in Crypto-Asset Regulations (MiCA or MiCAR) is a regulation passed by the European Union, which will become a law in 2024. The main aim of this regulation is to supervise the cryptocurrencies and digital asset market in the European Union. MiCA was approved in May 2023, and it is scheduled for enforcement starting December 30, 2024. This grants entities engaged in crypto operations a period of over a year to acquaint themselves with the novel legislation and align their procedures and practices accordingly.

This reforming regulation marks a significant milestone as the European Union takes the lead in becoming the first major jurisdiction to introduce a comprehensive law specifically designed for cryptocurrencies. MiCA covers a wide range of entities, encompassing both individuals and legal entities, along with various enterprises involved in crypto asset services and activities, whether their operations are direct or indirect. A crucial feature of MiCA is its flexibility to accommodate the decentralized structure of the crypto realm. It recognizes that services conducted in a fully decentralized manner, without intermediaries, are beyond its regulatory purview.

Which crypto assets come under MiCA regulation?

MiCA regulation covers three main crypto assets that are characterized by their ability to stabilize their value by connecting to other assets. Let’s take a look at each of them.

Asset-Referenced tokens (ARTs)

Asset-Referenced Tokens (ARTs) are crafted to uphold a consistent value through their connection to diverse assets. These may encompass several government-issued currencies like Dollars or Euros, commodities such as gold or oil, alternative digital currencies, or a blend of these underlying elements.

E-money tokens (EMTs)

E-money tokens (EMTs) serve as digital currencies tailored for transactions, maintaining stability through their tie to a government-issued currency like the Dollar or Euro acknowledged as legal tender. This linkage ensures a consistent and recognized value for seamless transactions.  

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Utility token

Utility tokens are created to grant access to specific goods or services within a Distributed Ledger Technology (DLT) system. Unlike security tokens, they are not classified as financial instruments under the securities laws of numerous countries. Nevertheless, they fall under the jurisdiction of the upcoming MiCA regulation.

Notably, stablecoins are also included in MiCA regulations; it can fit into both ARTs and EMTs categories.    

What are crypto-assets services offered by the MiCA?

Operation of a trading platform for crypto-assets

Operating a crypto-assets trading platform involves managing one or more multilateral systems. These systems bring together diverse third-party buying and selling interests in crypto-assets. It executes contracts through the exchange of crypto-assets for funds or other crypto-assets, following the platform’s rules. The definition does not specify whether matching these interests must adhere to non-discretionary rules.

Providing custody and administration of crypto assets

Custody of crypto-assets involves securely holding or controlling them, typically requiring the safe storage of cryptographic keys essential for accessing and transferring assets to third parties. Administration of crypto-assets encompasses facilitating the exercise of associated rights tied to these assets, ensuring their proper and effective management.

Trading crypto assets for either funds or alternative crypto assets

The exchange of crypto-assets for funds or other crypto-assets bears a structural resemblance to MiFID II’s dealing on own accounts, where trading utilizes the firm’s proprietary capital. In this crypto-asset service, a distinctive feature is the service element, indicating that the firm undertakes this activity to cater to its users rather than engaging in transactions for its own purposes.

Execution of orders for crypto assets on behalf of users

Executing orders for crypto-assets on behalf of users involves making agreements to buy or sell one or more crypto-assets or subscribing to crypto-assets on behalf of users. At the time of their public offering or admission to trading, this service also involves creating contracts to sell crypto-assets.

Reception and transmission of orders for crypto-assets

Receiving and transmitting orders for crypto-assets on behalf of users involves taking orders from individuals to buy, sell, or subscribe to crypto-assets and then forwarding those orders to a third party for execution. The firm serves as a messenger, facilitating the order process without directly intervening in the transaction itself.

Providing portfolio management of crypto assets

The portfolio management of crypto-assets, as defined by MiCAR, is encompassing scenarios where a user’s portfolio comprises one or more crypto-assets. When asset managers engaged in discretionary portfolio management acquire crypto-assets as outlined in MiCAR on behalf of the user, they will be deemed to offer a crypto-asset service. This implies that the scope of providing crypto-asset services extends to asset managers incorporating crypto-assets into user portfolios.

Providing transfer services for crypto assets 

Offering transfer services for crypto-assets on behalf of users involves facilitating the transfer of crypto-assets from one distributed ledger address or account to another on behalf of individuals or entities. This service entails managing and executing the secure movement of crypto-assets as part of the broader landscape of distributed ledger transactions.

MiCA regulation does not cover which crypto assets?

The Markets in Crypto-Assets Regulation (MiCA) is a European Union regulation that aims to provide regulatory clarity and supervision over the cryptocurrency asset market. Existing financial services legislation in the region does not currently regulate the covered crypto assets.

  1. Crypto assets without an identifiable user
  2. Unique and non-fungible assets 
  3. Certain intragroup transactions and public entities 
  4. Central bank digital assets 
  5. Specific types of assets

Final thoughts

MiCA, a comprehensive EU-wide regulation, seeks to offer regulatory transparency and oversight within the European cryptocurrency asset market. Filling the regulatory gaps left by current financial services legislation, MiCA establishes a legal framework governing previously unregulated crypto assets. This initiative is set to impact market players, enabling them to diversify and formulate crypto-asset strategies. The regulation aims to create a unified legal structure with robust safeguards, benefitting historically unregulated crypto-assets, service providers, and consumers alike.

If you are a crypto enthusiast and want to craft your crypto project then consult our professional team of market experts.

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