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14th March 2022 > > EU regulation.

Updated: Mar 15, 2022


A new EU directive Markets in Crypto Assets (MiCA) has taken a wrong turn.

Market Snap (at time of writing)

Market Wrap

Shorts are getting over leveraged again raising my hopes that another short squeeze inspired breach of $40k could be in the offing today. If this renewed enthusiasm by the shorts is based upon the very latest worrying developments out of Ukraine, then they are out of kilter with all other risk markets.

Curious Cryptos’ Commentary – EU regulation

The CCC has recently been full of praise for the recent about turn by the EU towards crypto regulation.

Until now, there has been a large discrepancy between member states of the EU towards the crypto industry. Germany has been very welcoming, with scores of ETPS (exchange traded products) aimed at retail investors and traded on regulated exchanges such as Deutsche Boerse. Even more impressively, last July a new law took effect allowing Spezialfonds to put as much as 20% - over $400bn - of their funds into crypto assets.

Not atypically, France tried the exact opposite route, with leading politicians criticising cryptos, and Convicted Criminal Christine Lagarde, in her role as head of the ECB, calling for “global regulation”, which is simply code for an outright ban, as if such a thing were even possible.

Wiser heads have prevailed over Lagarde, with the European Parliament to vote today or tomorrow on the Markets in Crypto Assets Directive (MiCA), which has already been approved by the European Commission and the European Council.

This vote had been delayed, as discussions took place to clarify one specific part of the directive. This disputed provision could have been interpreted as a “ban” on proof-of-work (POW) cryptos and had been stripped from the directive.

However, the draft directive issued over the weekend has reinstated this provision which includes this phrase:

"Crypto-assets shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union."

Further, the European Commission, the EU's executive branch, would be required to set "minimum environmental sustainability standards for consensus mechanisms used for validating crypto-assets transactions" and "the date or the dates from which the requirement to comply with the minimum environmental sustainability standards takes effect, including a phase-in period."

This is a spectacularly bad idea for several reasons.

Firstly, there is an ongoing debate around the legitimate environmental concerns of POW consensus mechanisms. Those who decry POW on environmental grounds mostly do so as their natural knee jerk reaction to any discussion of energy usage is based on political beliefs, held honestly and truthfully, but sometimes with scant regard for actual facts.

Secondly, the objective of this directive is to regulate the market around cryptos. Use of energy concerns has no place in financial regulation, and simply removes the clarity and certainty that are necessary requirements for a vibrant crypto economy.

Finally, as I keep pointing out, “bans” are utterly ineffective and self-defeating. The voicing of a mooted ban simply drives crypto tax dollars to another jurisdiction.

There is another wrinkle as well, something I have only just learnt.

Once the European Parliament has passed the directive – with or without this extremely damaging provision – the next step of the process is something known as a “trilogue”.

A trilogue is a “formal round of negotiations between the European commission, council and parliament” even though the directive has been passed by all three bodies after extensive discussion and modification over many months.

The bureaucratic wheels turn ever so slowly.

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