The European Union’s forthcoming crypto regulations, set to take effect by the end of the year, are poised to significantly transform the landscape for digital tokens, with stablecoins such as Tether’s USDT being at the forefront. These regulations, under the Markets in Crypto-Assets (MiCA) framework, are prompting several crypto exchanges within the EU to delist USDT in a bid to comply with the new directives. While the primary objective of MiCA is to enhance oversight and curb financial crimes like money laundering, experts in the crypto space caution that these measures might inadvertently dampen market activity without fully realizing their intended objectives.
Could MiCA Hamper Market Liquidity?
Industry leaders express concerns that MiCA regulations could potentially stifle market liquidity, thus making the EU a less appealing hub for digital asset traders during a pivotal period. Usman Ahmad, CEO of Zodia Markets, underscores that the delisting of USDT, which stands as the most liquid stablecoin, significantly narrows the choices available to EU clients. Stablecoins like USDT play a crucial role for crypto traders, facilitating fund transfers, cross-border transactions, and the settlement of traditional assets. However, apprehensions about their misuse in illegal activities have been mounting, highlighted by recent reports of Russian networks employing USDT for illicit transactions. In response, Tether has strongly condemned such illegal uses and reiterated its dedication to thwarting these activities.
MiCA Requires Stablecoins On CEXs To Have E-Money License
In a bid to reinforce the regulatory framework for the asset class, MiCA mandates that all stablecoins listed on centralized exchanges must be issued by entities holding an e-money license. These issuers are required to maintain up to two-thirds of the reserves backing their tokens with a reputable independent bank and to vigilantly monitor all transactions conducted for payment purposes. While Circle has successfully acquired this license, Tether has yet to secure it, which might lead to its delisting by December 30. Despite MiCA’s implementation, authorities need more advanced tools to effectively track illegal transactions, an area that currently falls short. USDT has been notoriously utilized in unlawful activities, but Tether is actively addressing this issue through a new partnership aimed at combating financial crimes.
Contrasting Regulatory Landscapes: EU vs. US
Meanwhile, the regulatory environment in the United States is anticipated to become more crypto-friendly, especially with the election of President-elect Trump, which has ignited a market rally. On the other hand, the European crypto market is experiencing a downturn, with investments dwindling and venture capital in crypto startups predicted to hit a four-year low. This trend raises concerns that Europe might lag in the rapidly evolving crypto market.
Encouraging Signs
Despite the challenges, there are some positive developments. The rate of crypto ownership in the euro area has more than doubled, reaching 9% since 2022, although the European Central Bank notes this increase may be partly due to changes in survey methodology. Nonetheless, the removal of Tether (USDT) from EU platforms is expected to drastically reduce liquidity, given USDT’s prominence in global trading pairs. Traders are anticipated to encounter disruptions as they transition from USDT to alternative stablecoins or fiat pairs. Some exchanges, such as OKX, have already observed traders shifting towards fiat pairs rather than adopting other stablecoins.
