Mica Regulation will come into force in a different crypto landscape

The licence procedure for crypto services providers (Casp’s) is up and running in the Netherlands. The AFM is not disclosing any information on pending applications but the market has already indicated that a shake up is happening and the Casps’s that do wish to apply may seek for a licence in a less expensive jurisdiction in the EU. A crypto service provider only needs a licence in one EU country to do business in the whole EU. So what’s the current state of affairs shortly before the Mica Reguation will be in full force on December 30, 2024?  

Brief introduction to the Markets in Crypto-Assets (Mica) regulation

The new European Markets in Crypto-Assets (MiCA) regulation, aims to regulate the crypto market within the EU. Part of the directive went into effect June 30, 2024, but concrete information on the effects is still scarce. In fact there’s not much to find in the Dutch and European media and literature about the effects of MiCa so far. But it’s just enough to give you an impession on the current state of affairs of the effects of regulation of the crypto markets.

Still, there are some signs that MiCA is already starting to have an impact, such as shifts in the business landscape and an increased threshold for smaller crypto companies. Critics fear that MiCAR not only increases costs for smaller providers, but could also limit innovation by denying EU citizens access to crypto products that are available in other parts of the world. Also check out our Guide the Markets in Crypto Assets Regulation.

Impact on small and medium-sized crypto service providers

Indeed, the implementation of MiCA presents challenges due to the vast and complex nature of the cryptocurrency landscape. The broad scope, although aimed at full oversight, could unintentionally create significant burdens for startups and smaller service providers, raising barriers to entry and inhibiting innovation.^[1]

The introduction of the new licensing requirement affects the cost and playing field of providers. On top of this, the proposed Dutch transition period forces parties to decide on short notice (compared to other countries) whether to obtain a MiCAR license (see table). The consequences of these rising costs, the changing playing field and the short transition period weigh particularly heavily on the shoulders of small to medium-sized crypto service providers.”[2]

As mentioned above, many unregulated and small crypto companies will not manage to comply with the new legislation and will be taken over by larger crypto companies. In a few cases, this has already been the case: Foreign crypto exchange Bybit acquired Satos,[3] British ICONOMI not long ago acquired Dutch Triaconta,[4] and Dutch Coinmerce earlier this year took a majority stake in cryptofons Icoinic. Not only are many acquisitions taking place. Litebit ceased operations June 2023, in part because of increasing costs to comply with laws and regulations.

Relocation of crypto services to other countries

Another effect of the MiCA regulation is that dozens of crypto companies, a large part of the industry, are planning to leave the Netherlands or close their doors, due to the strict and expensive AFM supervision that takes effect at the end of this year. The AFM promises no leniency in enforcing the MiCA. The supervisory costs to be borne by companies are rising by millions of euros, much more than in other countries. Involved parties therefore expect a wave of takeovers, bankruptcies and relocations. The many MiCA requirements are becoming too much. A spokesman for the crypto exchange says to expect a wave of consolidation in the crypto market. Big LiteBit already stopped, Bitcoin Master (BCM) was acquired.^[5]

The AFM license application procedure is expensive and supervision in the Netherlands is becoming relatively strict and expensive. While companies can apply for a license in any member state, valid throughout the European Union. Crypto companies then enter the Dutch market through Malta, Cyprus or tax havens, where supervision is cheaper and less stringent. As a result, European MiCA rules can lead to additional unfair competition. Case in point, OKX, one of the largest crypto exchanges by trading volume, goes to Malta and Israeli broker eToro chooses Cyprus.”[6] Crypto-exchange KuCoin has decided to cut the Nethaerlands out of it’s business scope. This is what it’s website mentions: “Based on your IP address, we currently do not provide services in your country or region due to local laws, regulations, or policies. We apologize for any inconvenience this may cause.”

Stifling Mica Regulation may force crypto service providers out of the EU

According to the Financial Times, the MiCAR regulation seem outdated even before they have officially come into effect, and the first effects are already visible. Last month, US company Paxos announced the launch of “Lift,” a stablecoin linked to the US dollar that will offer returns to holders and regulated from Abu Dhabi. This excluded the EU, said CEO Charles Cascarilla, because European regulations would be “stifling.” Critics fear MiCAR will stifle innovation and restrict EU citizens and companies from using products that are available elsewhere in the world.

Peter Großkopf of Iron Bank is also skeptical about whether MiCAR is really the big, innovation-driving hit. Indeed, he fears MiCAR will lead to the “deletion of American stablecoins,” he explains in a Wirtschaftswoche article. Case in point is Theter, whose CEO said in April that the company was not in the process of applying for a license in the EU. Commenting to the Wirtschaftswoche, they stated that the company has not yet applied for a license, but that “strategic adjustments and cooperation with regulators” would be needed to get it done.”[7]

Blenheim assist professional service providers in compliance and enforcement procedures. We’re happy to share our knowledge with you.

[1] The Influence of European MiCa regulation on cryptocurrencies, p. 2

[2] https://kpmg.com/nl/nl/home/insights/2024/01/verwachte-shake-out-van-cryptodienstenaanbieders-in-2024.html

[3] https://www.emerce.nl/nieuws/cryptobeurs-opent-kantoor-amsterdam

[4] https://www.crypto-insiders.nl/wallets-en-exchanges/iconomi-neemt-nederlandse-crypto-aanbieder-triaconta-over/

[5] https://fd.nl/financiele-markten/1522782/cryptobedrijven-vertrekken-of-stoppen-wegens-veeleisend-afm-toezicht

[6] https://fd.nl/financiele-markten/1529788/oneerlijke-concurrentie-kan-nederlandse-cryptomarkt-verstoren

[7] https://www.wiwo.de/finanzen/geldanlage/mica-wie-die-neue-krypto-regulierung-anleger-in-europa-einschraenkt-/29866058.html