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4th April 2022 > > EU Regulation.

Updated: Apr 5, 2022


EU regulation suddenly takes an unexpectedly huge step in the wrong direction.

Market Snap (at time of writing)

Market Wrap

Strangely I dreamt last night that I would be reporting BTC at $53k this morning.

Do you think I might be letting my emotions get the better of me?

Curious Cryptos’ Commentary – EU Regulation

Recent editions of the CCC have expressed both surprise and admiration for the regulatory developments emanating from the machinations of the EU bureaucracy.

The recent Markets in Capital Assets (MiCA) legislation had opportunities to take any one of many potential wrong turns.

One such potential booby trap was led by a grouping of some politicians whose primary focus is only to advance an environmental agenda, with no proper and due consideration of all other relevant factors (tax base anyone?). This group tried to hijack MiCA to outlaw Proof-of-Work (POW) coins - the largest of which is of course BTC.

Putting aside the fact that banning cryptos simply isn’t possible, if the eco-warriors had got their way, all those lovely crypto tax dollars currently accruing to Germany and other countries would rapidly head over to the UK and the US.

Having avoided that booby trap, much of the rest of MiCA appears to be sensible and will give regulatory and legal certainty to crypto business and crypto investors. This is a pretty good launchpad to foster innovation and growth within the EU.

The only major downside is that the time between now and implementation will be at least months, if not years, but that is a standard timescale for civil servants whose grasp of reality is somewhat at odds with ours.

But one should never underestimate the ability of politicians to backtrack and muck things up.

The European Parliament has voted in additional legislation in the form of applying The Transfer of Funds Regulation (TFR) to cryptos. In effect this will prevent centralised exchanges that provide fiat on-ramps to the crypto world from transferring cryptos to anonymous self-hosted wallets, such as Ledger Nano or MetaMask.

You won’t be surprised to hear that the vote split according to party political views, which is desperately disappointing.

Tether CTO Paolo Ardoino described the move as:

“… a big step back for human rights”.

Pascal Gauthier, CEO of Ledger:

“… the EU has chosen fear over freedom. EU representatives are missing that this digital shift has the potential to create thousands of jobs and a vibrant industry on European soil.”

Markus Ferber, economic spokesperson for the European People’s Party (EPP) who voted against this legislation said:

“Such proposals are neither warranted nor proportionate. With this approach of regulating new technologies, the European Union will fall further behind other, more open-minded jurisdictions.”

Other politicians should listen to Markus talking sense.

The justification stems from an over-stated fear that cryptos are mainly about enabling criminal activity.

Seth Hertlein, Head of Public Policy at Ledger, explains the falsity behind this line of thinking:

“Money laundering accounted for just 0.05% of all cryptocurrency transaction volume in 2021

according to Chainalysis, while the UN estimates the amount laundered every year through fiat currency is up to 5% of global GDP - more than 232 times greater than the amount laundered through crypto.”

The requirements appear to be overly burdensome. At present, Know Your Customer (KYC) rules that apply to centralised exchanges mean that all users are identified using passports and other formal means of id.

It is hard to see how anyone can prove ownership to a centralised exchange of a self-hosted wallet except for declaring it to be so. It looks impossible for centralised exchanges to verify such a claim.

The effect will be that centralised exchanges based in Europe and subject to EU regulation will simply not allow transfers of cryptos off the exchange to self-hosted wallets. Whilst there are some people who only ever store cryptos on an exchange, the number is not large. With the growth in such applications as Decentralised Finance (DeFi) European based centralised exchanges will become marginalised and irrelevant.

The inate desire held by some legislators for centralisation and control over individuals will not stand the test posed by cryptos.

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