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Absence of monetary authority and lender of last resort exposes most cryptocurrencies to high volatility in the face of speculative activities. In 2017, as mentioned above, DG DIGIT’s EU Blockchain Competence Centre was set up to track the evolution of blockchain technology, to be ready to leverage some of its benefits, and to provide independent advisory services to other DGs37 [49]. Data confidentiality and security are major concerns, so any solutions need to put in place strong privacy mechanisms in compliance with data protection regulation [49]. This centre started with a study conducted by Deloitte called ‘Impact of Distributed Ledger Technology in European Policymaking’ (IDiLeTech, EP), which attempted to identify classes of the European Commission’s core business processes most susceptible to being improved by blockchain and DLTs [49].

The MiCA Law

The MiCA Law or Law for Cryptoactive Markets, is a new EU regulation focused on offering a common regulatory framework for the entire financial ecosystem that revolves around blockchain and cryptocurrencies. In short, we are facing what would be the beginning of a truly correct regulation for the crypto space, which would also make the rules of the game very clear for users, service providers and other entities related to the world of tokens and cryptocurrencies [47].

The MiCA Law is the first comprehensive regulation for cryptocurrencies in the EU. Approved on October 10, 2022, the body of the Law consists of more than 100 articles that address issues such as money laundering, KYC, consumer and investor protection, the responsibility of cryptocurrency companies and stablecoins [47].

Crypto-Asset Service Providers (CASPs)

the Law establishes a global framework that sets the requirements for the operation and governance of the main issuers of crypto assets and CASP service providers (Contracted Application Service Provider). It also makes clear the protection framework for holders of crypto assets and other clients of service providers [47].

CASPs shall require authorisation in order to operate within the EU. The types of services covered by MiCAR comprise of [48]:

  • The operation of a crypto-asset trading platform
  • Custody and administration of crypto-assets on behalf of clients
  • Exchange of crypto-assets for funds/other crypto-assets
  • Execution of orders for crypto-assets on behalf of clients
  • Receiving and transmitting orders for crypto-assets on behalf of clients
  • Placing of crypto-assets
  • Providing transfer services for crypto-assets to third parties
  • Providing advice on crypto-assets
  • Portfolio management on crypto-assets on behalf of clients.

MiCA & NFTs

A relevant point of this regulation is that non-fungible tokens (NFT) that are individual and different would be excluded from the scope of application of the MiCA. This unless the issuer creates a "collection" of assets for purchase. In addition, MiCA will force the issuing entity of the NFT under its regulatory framework [47].

MiCA Objectives

MiCA aims to regulate any digital representation of value or rights that can be shared or stored electronically, using distributed ledger technology (DLT), blockchain or similar. The Law can be broken down into four general objectives, which are [47]:

  • Provide legal certainty for crypto assets that are not covered by current EU financial services legislation.
  • Replace existing national frameworks applicable to crypto assets not covered by current EU financial services legislation. This seeks to create a common regulatory framework for this type of services in the EU.
  • Establish uniform rules for crypto asset service providers and issuers at the EU level.
  • Establish specific rules for stablecoins, even when they are traded as electronic money.

Issuers of Asset Reference Tokens (ARTs) and E-Money Tokens (EMTs)

MiCAR will bring issuers of certain types of crypto-assets into the regulatory framework. Specifically, MiCAR will establish new rules for those types of crypto-assets known as "stablecoins" including Asset-Referenced Tokens (ARTs), E-Money Tokens (EMTs) and utility tokens. As defined by MiCAR [48]:

  • ARTs reference multiple currencies, commodities or other crypto-assets.
  • EMTs reference a single official currency.
  • Utility tokens provide access to a good or service supplied by the issuer of that token.

Other regulations exist in other geographies

The regulatory landscape for cryptocurrency in the U.S. is not well defined, and it evolves constantly. Different federal agencies treat digital assets differently based on their own assessments of crypto’s characteristics. Lawmakers may weigh in, too, and states can establish their own rules [50]

The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS) each have unique interpretations of cryptocurrencies [50]:

  • SEC: Cryptocurrencies are securities. The SEC wants to classify digital assets as securities. The agency is concerned with investor protection, and requires that all offerings that qualify as “investment contracts” be formally registered. The SEC in 2023 is taking an approach of regulation by enforcement, filing major lawsuits against companies like Coinbase.
  • CFTC: Cryptocurrencies are commodities. The CFTC argues that cryptocurrencies are commodities, akin to oil or gold. The agency defines commodities as assets that can support futures contracts, and it already regulates an active market for cryptocurrency futures. The agency has initiated enforcement actions against unregistered Bitcoin futures exchanges.
  • IRS: Cryptocurrencies are property. The IRS classifies digital assets as property. Categorizing digital assets in this way means that every sale, trade, or purchase using cryptocurrency is potentially taxable, and capital gains tax rates apply. The IRS began treating crypto assets as property in 2014.

Countries around the world have a wide range of rules for digital currencies. Here are some of the countries that are leading the way for crypto regulation [50]:

  • Canada. The United States’ neighbor to the north regulates crypto trading platforms by requiring registration with provincial agencies. Crypto investment firms are classified money service businesses, and crypto is taxed like other commodities. Canada permits cryptocurrency exchange-traded funds to operate on the Toronto Stock Exchange.
  • United Kingdom. The UK regulates digital asset companies, but generally does not make rules for cryptocurrencies themselves. The Financial Conduct Authority ensures that crypto companies follow best practices to prevent money laundering and terrorism financing, while the Advertising Standards Authority aims to regulate cryptocurrency advertising. The United Kingdom treats crypto as a capital asset for tax purposes.
  • Switzerland. This Nordic country takes a notably progressive approach to regulating cryptocurrency. Lawmakers in 2020 passed a law on distributed ledger technologies (DLTs), introducing the concept of “DLT securities” and enabling tokenization for rights, claims, and financial instruments. Taxpayers in Switzerland may owe income tax or the wealth tax on their crypto holdings.
  • El Salvador. This Central American nation stands out for being the only country to declare Bitcoin as legal tender. Bitcoin can be used nationwide; in fact, its acceptance by merchants is compulsory. El Salvador accepts tax payments in Bitcoin and exempts foreigners from paying any taxes on income from their Bitcoin gains.

The European Union’s sustainable finance strategy has three components: the green taxonomy, which entered into force in July 2020; the Sustainable Finance Disclosure regulation (SFDR), which has been applicable as of March 2021; and the Corporate Sustainability Reporting Directive (CSRD), which entered into force in January 2023 [53]. On July 31st, the European Commission adopted the first set of 12 European Sustainability Reporting Standards (ESRS), marking a historic milestone in our transition towards a more sustainable economy. The ESRS establishes the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the Corporate Sustainable Reporting Directive (CSRD) [51].

Approximately 50.000 European companies will be subject to the first round of CSRD Reporting under the ESRS [51].

The CSRD is one of the first legal standards of its kind to be approved and applicable to multiple countries, across industries and should be a force for change not only in EU but to serve as a guide for other countries and regions around the world [52]. The CSRD can be a good first step towards this process because only when standard guidelines are applied to the capture of impact data can we then move to credible pricing schemes whereby the real cost of products can be measured and then policy can be applied to ensure those costs are reflected in the actual costs via things through tools that put a price on ecosystem services (e.g. carbon, energy, land use, biodiversity, clean air, etc) [52]. The CSRD, which companies will start following in financial year 2024, covers a wider range of sustainability topics, including social indicators (such as child labour, gender balance, and corruption). Unlike most other reporting frameworks, the CSRD requires companies to assess “double materiality”. In addition, corporate data repositories are being developed in jurisdictions such as the European Union to make data publicly available [53].