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Alarm Raised Over EU’s MiCA in Wake of China Crypto Ban

In post-China crypto ban days, the European Union (EU) is putting up to vote a new regulation which a French member of parliament, Pierre Person, says “definitively condemns the future of crypto-assets in Europe.”

A decision is to be made on the Markets in Crypto Assets (MiCA) directive which has been in the works since 2018 after the Bitcoin rally of 2017 and continues to be worked on as a means to pave the way for a regulatory framework for crypto assets within Europe while still trying to allow innovation. Similar in a way to last week’s US Executive Order, MiCA seeks to balance crypto assets’ access and innovation with regulations across the EU region.

However, with suggestions that the EU is likely to follow in China’s step in banning mining activities, alarms have been raised from various quarters on the uncertain outcome of the vote which is feared could make crypto assets that are deemed unsustainable be prohibited from being issued, offered or admitted to trading within the EU.

“MiCa is a significant break with the principle of technological neutrality. MiCa prohibits the issuance or offering for exchange of crypto-assets that rely on Proof-of-Work protocols,” states Person in a tweet. This leads to a deadly regulation that excludes Bitcoin and Ether from Europe.”

After China banned Bitcoin mining last year, most of the related activities moved elsewhere but not really to EU countries which account for only 10% of the whole mining activity. By June 2021, central, northern and western Europe reportedly accounted for 25% of global crypto activity from July 2020 with over $1 trillion worth of digital assets transacted within the one-year period, according to Chainalysis.

China’s crackdown on crypto mining gave the U.S. the lead in Bitcoin mining. At the same time, USD-pegged stablecoins circulating on public blockchains grew rapidly – at a more than 500% increase from a year ago to $130 billion as of September 2021, according to a January 2022 Federal Reserve growth report. Some critics of the MiCA directive say its approval would simply favour the U.S. more.

“MEPs have taken a hard line on crypto-assets, thinking they are protecting citizens,” Person tweets. “In reality, this version is mortifying for our competitiveness while, at the same time, President Biden has signed an act calling for the US to fully embrace this new ecosystem.”

Person’s view is shared by Facebook’s former top crypto executive, David Marcus, who thinks EU’s attitude “will create an enormous opportunity for the US to reinforce its lead in a massive industry in the making” adding that last week’s Executive Order “outlined the importance of finding the right regulatory balance for the US to remain in the lead.”

While a section of the draft new law states that crypto assets issued and/or traded in the EU “shall be subject to minimum environmental sustainability standards and set up and maintain a phased rollout plan to ensure compliance” hence the suggestion that the likes of Bitcoin could be banned, it’s been argued that MiCA is merely suggesting that crypto miners should go green for their activities. Either way, industry leaders such as Jeremy Allaire, CEO of Circle and Jake Chervinsky, head of policy at Blockchain Association, who raised an alarm to the proposal, believe MiCA is bad for crypto.

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