EU Plans for Crypto Regulation as Stablecoins Remain a Concern

The European Commission (EC) is gearing up to regulate the digital asset market as a leaked draft document shows its intention to control crypto trading as well as the issuance of new assets.

First reported by Coindesk, the 168-page draft is likely to be officially published later this month. However, even if the recommendations were implemented, those would not be added into the European Union laws until 2022.

The document indicates that the regulator is planning to bring Markets in Crypto-assets (MiCA) for the digital assets, which is very much similar to the existing Markets in Financial Instruments Directive (MiFID) framework that regulates the European securities market.

This will provide legal clarity to the now-loosely regulated Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term, but the extent of that is still unknown.

Additionally, a read of the draft indicates that the commission is much more concerned with the so-called stablecoins, rather than digital currencies as a whole.

“A relatively new subset of crypto-assets, the so-called ‘stablecoins’, has recently emerged and attracted the attention of both the public and regulators around the world,” the draft stated.

“While the crypto-asset market remains modest in size and does not currently pose a threat to financial stability, this may change with the advent of ‘stablecoins’ as they seek wider adoption by incorporating features aimed at stabilizing their value and by exploiting the network effects stemming from the firms promoting these assets.”

This might be in the wake of Facebook’s plan to launch Libra, a Stablecoin Stablecoin Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including Unlike other cryptocurrencies like Bitcoin and Ethereum, stablecoins are cryptocurrencies that have been designed to keep a stable value. Placing a greater emphasis on stability over volatility can be a huge draw for some investors. Many individuals can be turned off from large swings and uncertainty presented by cryptos relative to other traditional assets.Stablecoins control for this volatility by being pegged to another cryptocurrency, fiat money, or to exchange-traded commodities, including Read this Term pegged to a basket of fiats. Notably, the Libra Association updated its whitepaper earlier this year, changing the structure of the digital currency.

Local Regulators Are a Step Ahead

Though the 27 nations bloc is yet to confirm much on cryptocurrencies, some individual European nation’s regulators are progressing to bring clarity on crypto.

Germany’s BaFin is already looking at digital assets as financial instruments and also mandated licensing to most of the activities in the sector. Other regulators are also slowly aligning with the Financial Action Task Force (FATF) recommended regulations.

In fact, the EC’s broad definition of crypto falls in line with the FATF’s classification of the virtual asset service providers (VASP).