The Markets in Cryptoassets (MiCA) Regulation is the EU regulation governing issuance and provision of services related to cryptoassets and stablecoins. Adopted on April 20, 2023, by the European Parliament, MiCA is the first and only legislation of its kind in the world and leads the way for other jurisdictions. MiCA will enter into force at some point between mid-2024 and early 2025.
The European Union reached a policy consensus in October 2022 on the Markets in Cryptoassets (MiCA) Regulation. It has now been ratified by the European Parliament and thus becomes the first regulatory framework for cryptoassets in the world. MiCA covers issuers and service providers, with the aim of protecting consumers and investors while ensuring financial stability and supporting innovation. The regulation, which will enter into force between mid-2024 and early 2025, positions Europe as an attractive region in the crypto market.
“MiCA is a pioneering legislative text in terms of regulating crypto markets. It undoubtedly places the European Union as a global pace-setter. We should also be well aware that crypto markets are multi-jurisdictional. Regulatory efforts similar to MiCA in the rest of jurisdictions would contribute to the creation of a safe, robust and necessary ecosystem for cryptoasset markets globally," explains María José Escribano, a member of BBVA's Digital Regulation team.
What is covered by MiCA?
MiCA defines a crypto-asset as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.” The Regulation draws a distinction between ‘cryptocurrencies’ on one hand and 'tokens' on the other. MiCA also sets requirements for cryptoasset issuers and cryptoasset service providers (CASPs). Cryptoasset issuers must provide complete and transparent information about the cryptoassets they issue, and comply with disclosure and transparency rules. Cryptoasset service providers must be registered and implement security measures and anti-money laundering compliance.
Classification of cryptoassets
MiCA provides a regulatory framework for digital assets that use decentralized ledger technology (DLT). The main cryptoassets covered by MiCA are:
1. Asset-referenced tokens (ARTs),, a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets. This category includes all cryptoassets that do not qualify as 'electronic money tokens,' which purport to maintain a stable value by referring to the value of a fiat currency that is legal tender. An example of this is Digix (DGX), backed by an equivalent amount of physical gold stored in a secure vault.
2. Electronic money tokens (EMT),, which purport to maintain a stable value by referring to the value of a fiat currency that is legal tender. The difference between ARTs and EMTs is the configuration of the underlying asset that supports the price. ARTs use non-cash assets or a basket of currencies, while EMTs use a single currency, which brings them closer to the concept of electronic money.
3. Cryptoassets that are not considered ARTs or EMTs, such as ‘utility tokens,’ which are intended to provide digital access to a good or service, available on DLT, and are only accepted by the issuer of that token. Unlike security-type tokens, they are not considered a financial instrument under the securities laws of many countries.
Cryptoassets not covered by MiCA
MiCa excludes new paradigms such as the DeFi (Decentralized Finance) industry and non-fungible tokens (NFT). According to the definition provided by the European Central Bank, DeFi is a new way of providing financial services that dispenses with traditional centralized intermediaries and instead relies on automated protocols.
"MiCA leaves several components of the digital asset world outside its scope," explained María José Escribano. “DeFi is one of them, but also non-fungible tokens, security tokens, and even cryptoasset finance. All these variables either already have their own regulation in accordance with their nature, as in the case of security tokens, or they have such specific features that legislators need to carry out further analysis to configure a regulatory framework that suitably addresses the risks," she added. In any event, "MiCA is undeniably a forward stride toward strong consumer protection, while minimizing the risks these markets are likely to pose to financial stability," she said.
Non-fungible tokens, on the other hand, are unique and indivisible tokens that represent a piece of digital art, a video, a tweet, or any other unique object. Unlike cryptocurrencies, which are fungible or exchangeable among others of equal value, NFTs are unrepeatable and backed by unique assets. Central bank digital currencies (CBDCs) also fall outside the scope of MiCA.
Why MiCA matters
BBVA's digital regulation expert explained that, "MiCA will provide regulatory certainty and stronger protections for consumers in the crypto market, while supporting innovation." To achieve these goals, "MiCA establishes mechanisms to ensure that stablecoins are truly stable, require enhanced transparency in the market, and prevent players from creating excessive risk, while making sure that the assets under custody are genuinely protected."
MiCA also seeks to mitigate the environmental impact of cryptocurrencies. Some cryptocurrency mining–the process of validating transactions and adding new units to the blockchain–requires high-powered equipment that consumes large amounts of energy that may come from fossil fuels such as coal. The industry also requires a considerable volume of computer components and generates electronic waste.
MiCA is designed as a building-block of a wider regulatory effort, which includes initiatives such as the Digital Operational Resilience Act (DORA), the DLT Pilot Regime and the Transfer of Funds Regulation (TFR). DORA sets standards for the development and maintenance of security measures in financial sector organizations and third parties that provide related services, such as cloud computing or data analysis.
The DLT Pilot Regime aims to implement pilot market infrastructures for the issuance, trading and settlement of security tokens using DLT technology, and also modifies the definition of "financial instrument" under the MiFID II Directive to include those based on DLT technology.
Finally, the Transfer of Funds Regulation (TFR) applies to cryptoasset transfers and ensures financial transparency in cryptoasset exchanges.