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Cryptocurrency, as a financial asset, has not been fully accepted by mainstream society, and the most important missing link is the “regulatory system.” From the FTX crash to the evaporation of 70% of Bitcoin’s market value, all these events indirectly illustrate the importance of regulation.
It can be said that over the past few years, multiple collapses and scams have impacted the industry. In response, the United States and Europe, which are the global centers of cryptocurrency, have introduced relevant regulations.
We must realize that under jurisdictions with transparent and comprehensive regulatory frameworks, the probability of cryptocurrencies and stablecoins gaining trust from mainstream society will be higher.
Although legal certainty is a key factor influencing economic behavior in both traditional finance and crypto finance, the market and data do not lie. We can clearly conclude from the data that countries with established digital currency legislative frameworks are more likely to attract investment and innovation in this field.
Trust and security are the most fundamental prerequisites for economic behavior.
And this is what global cryptocurrency practitioners and financial institutions led by Europe and the United States have been pursuing. Now let’s take a look at the progress of crypto regulations around the world:
Milestone — US Stablecoin Bill Draft Unveiled
On April 16, 2023, the U.S. House Financial Services Committee released a milestone draft version of the Stablecoin Bill, marking the first major cryptocurrency legislative move of 2023.
The bill also proposes allowing non-bank stablecoin issuers access to central bank funds. Any bank or non-bank applicant must make a decision within 90 days. At the same time, the penalty for operating an unlicensed stablecoin has been set at $100,000 per day.
The proposed bill introduces new rules and regulations for U.S. payment stablecoin issuers. The legislation will explicitly grant non-bank stablecoin issuers full access to central bank deposit accounts and central bank borrowing. Even the Treasury Department acknowledges that central bank deposits may provide the safest asset backing. Other acceptable stablecoin backing assets are physical cash, short-term government bonds, and repurchase agreements based on government bonds.
The House Financial Services Subcommittee held a hearing on stablecoins last Wednesday, with participants including Circle’s Dante Disparte, Blockchain Association’s Jake Chervinsky, Columbia University Professor Austin Campbell, and New York Financial Services Superintendent Adrienne Harris.
Significant Initiative: EU Approves MiCA Framework
As the U.S. regulatory bill lands and hearings are convened, EU regulators are accelerating their efforts to establish regulatory mechanisms to ensure that Europe and the U.S.’s influence in the future crypto industry remains unaffected before policy frameworks are introduced in other regions.
After years of negotiations, or perhaps stimulated by the United States, the European Union’s “Markets in Crypto-assets Regulation” (MiCA) has finally been approved. MiCA consists of a series of extensive regulatory measures aimed at providing a comprehensive crypto regulatory framework for centralized crypto actors.
Patrick Hansen, EU Strategy and Policy Director at Circle, wrote: “MiCA could have a positive impact on EU crypto businesses and the overall EU economy, but its success will largely depend on the practical implementation standards that will be developed.”
MiCA is a massive framework that divides its stablecoin-related content into two subcategories: Electronic Money Tokens (EMTs) and Asset Reference Tokens (ARTs).
Under the MiCA framework, an EMT refers to any token intended to stabilize its value by referencing the value of a single fiat currency. Such tokens include USDC, USDT, and EUROC. EMT issuers must have a certain level of capital reserves, with so-called “significant” institutions subject to additional constraints and regulated by the European Banking Authority.
Meanwhile, ART regulations are essentially the EU’s response to concerns raised by projects such as Facebook’s abandoned Diem token, covering stablecoins that are not pegged to a single fiat currency, including those referencing currencies, commodities, and baskets of cryptocurrencies.
Good or Bad?
The main concern of mainstream practitioners is that overly restrictive rules for crypto businesses may impact the development of the crypto industry. While establishing clear rules is crucial for promoting stability and security, overly complex laws may stifle the industry’s expansion and innovation, which is an undeniable difficulty. At present, the only hope is that regulatory provisions will gradually improve over time.
The long-term survival and prosperity of the cryptocurrency business depend on clear and well-defined laws. Building consumer trust, establishing transparent and accountable systems, and attracting investment and innovation are all benefits of global regulatory frameworks. Although concerns about restrictions being too strict persist, changes can always be made. To stimulate the upcoming bull market, policymakers and regulators must establish a regulatory framework that balances innovation and stability.