Cryptocurrencies: the bases of the MiCA Law have been approved in Europe

If you have bitcoins or other types of cryptocurrencies, you must know the applicable regulations and the taxation that affects them. In early October, the European Council approved the text of the MiCA law (for its acronym in English Markets in Crypto-Assets) about the use of bitcoin in the European Union. The Law is pending approval by the European Parliament, but it is essential to know its content. In this article, we tell you all the news.

The MiCA law is a regulation that began to be debated in 2020 and consists of a rule related to crypto actives markets that will affect bitcoin and other virtual currencies. It is considered that the final approval and publication of the Law will take place next year and, later, it will enter into force, indeed, in the third quarter of 2024.

The evolution of the cryptocurrency markets has been evident in recent years: new cryptocurrencies have been issued, trading volumes have increased, and new platforms have appeared. This situation has made necessary the appearance of a new regulation that avoids problems such as money laundering or fraud.

What novelties does the MiCA law bring to the regulation of cryptocurrencies?

The approval of the MiCA law has been complicated since it has faced various reluctance since cryptocurrencies stand out for not being controlled by governments and authorities and for using cutting-edge technologies based on the blockchain.

Here are some critical aspects of the new regulations.

What is the MiCA Law?

This is the first global regulation of cryptocurrencies that are expected to become a benchmark worldwide. However, the rapid technological evolution that affects cryptocurrencies will mean that when the new rule is approved, it will be partially obsolete or have shortcomings, which is why there is already talk of MiCA II.

Entry into force

As we have seen, the MiCA Law will enter into force, foreseeably, in the year 2024.

Purpose of the MiCA law

The MiCA Law aims to provide greater security in the cryptoactive market, and one of its main novelties is regulating a registry of Exchange platforms operating in Europe. These establishments must obtain a license to offer their services.

In addition, the new regulations want to provide a new solution to problems such as:

• Money laundering. Crypto asset service providers whose parent company is located in a country considered high risk for money laundering activities will be included in a specific list of the European Union and will have to apply more controls to comply with the regulations of the European Union. European Union.
• The protection of consumers and investors in cryptocurrencies. In 2022 there have been significant scams related to cryptocurrencies. For example, the theft of the game Axie is well known. Infinity by a cybercriminal managed to steal 173,600 Ethereum and 25.5 million USDC. These scams have meant that measures are taken to protect consumers, such as the right of withdrawal, the right to full and prompt reimbursement and the right to compensation for damages.
• The responsibility of the Exchange. Exchange platforms must maintain a one-to-one ratio of the underlying currencies and assets to ensure liquidity. This way, consumer wallets will be protected, and Exchange platforms will be held responsible if cryptoassets are lost. In addition, all cryptoactives in the market must have a white paper in which the characteristics and associated risks appear, especially the chance that they lose their value in whole or in part.
• The stablecoins. In May 2022, there was a resounding drop in Terra USD and, consequently, in the Terra (LUNA) token, which fell almost 0.99 dollars in one weekend. Therefore, stablecoins have also come under regulation.
• The environmental effects of cryptocurrency mining. Crypto assets have a tremendous ecological impact due to the high energy consumption involved in mining. Therefore, companies in the crypto asset market must declare their environmental and climate footprint.

Effects on national regulations

With the entry into force of the MiCA Law, all national regulations of the countries of the European Union on cryptocurrencies will be annulled. The new rules will unify the control criteria for crypto assets and regulations, overcoming the differences between national laws that lead to market fragmentation and unequal competition.

Definitions

Something fundamental that the MiCA Law does is provide definitions that unify criteria concerning concepts on which it is active. For example, define the cryptoasset as:

“One digital representation of value or rights can be transferred and stored electronically, using decentralised ledger technology or similar technology”.

In addition, the MiCA law differentiates three types of tokens:

• Tokens of utility or services ( Utility Tokens). They are those that consist of a kind of currency that gives subsequent access to a good or service offered by the project that is financed with the tokens. For example, they are used to finance startups.
• -referenced tokens ( Asset referenced tokens – ART, stablecoins or stable cryptocurrencies). The issuers of these assets must request authorisation from the competent authority, which will be valid throughout the European Union thanks to the one-stop-shop principle or single window.
• Tokens referenced to electronic money (Electronic money tokens – EMT). They are crypto assets that are used as a medium of exchange.

In short, in the coming months and years, the regulation related to cryptocurrencies and other cryptoactives will adapt to the reality of the markets and technology, protecting consumers and providing security in transactions to avoid risks such as scams, loss of money or money laundering.

Suppose you have cryptocurrencies or have considered buying or using them. In that case, we put at your disposal a team of experts in cryptocurrency taxation who will advise you and help you comply with the applicable tax regulations.