Regulation is the key to crypto success!

The fall and closure of the dubious Bahamas-based crypto exchange FTX.com and the chain reactions and domino effects associated with it once again illustrate the urgent need for effective regulation of the crypto markets. Europe can play a pioneering role here. The final text version of the future Markets in Crypto Assets Regulation (MiCAR) in the European Union has existed since the end of September 2022. The EU had already planned changes to the MiCA (Markets in Crypto Assets) in this regard.

In the following guest article, the lawyers Stephan R. Schulenberg (picture on the left), André Schenk (picture in the middle) and Finn Niklas Nitz (picture on the right) from the Hamburg business law firm SBS LEGAL Rechtsanwälte Schulenberg und Partner deal with this topic. and crypto law and is, in my opinion, the leading law firm in Germany in this area. I myself am legally advised and represented by SBS LEGAL in a wide range of areas, primarily within media and press law.

MiCA and MiCAR: This is the EU’s legislative framework

The Markets in Crypto-Assets Regulation (MiCAR) forms the legal framework for Distributed Ledger Technology (DLT) and for virtual assets in the EU and has the primary objective of protecting investors and users of cryptocurrencies such as Bitcoin or Ethereum. The new regulation creates, for the first time, a uniform regulatory framework for business models based on crypto-assets in the EU. The rules allow crypto service providers to operate their businesses based on the same rules across Europe.

Implementation of MiCAR by Member States is not required. 18 months after the rules come into force, they apply directly to market participants without the need for further involvement of national legislators. A main point of MiCAR is the regulation of crypto services, which cannot actually be operated without permission. The question is what will be considered a licensable crypto service or what will also be a licensable crypto service in the future.

MiCAR: Definitive Directory of Crypto Services

The soon to be introduced MiCAR regulates which crypto services will require a license in the future. The following activities will soon require a permit throughout the EU:

+ Storage and management of crypto assets for third parties

+ The operation of a trading platform for crypto assets

+ Exchange of crypto-assets for legal tender and other crypto-assets

+ Execution of customer orders

+ Acceptance and transmission of orders for crypto assets to third parties

+ Advice on crypto assets

MiCAR itself defines the above terms. The following definitions are part of the regulation:

+ Storage and Administration = Secure storage of private keys or other funds required for third parties necessary for access to cryptoassets.

+ Crypto asset advice = Offer or provide personal recommendations regarding the use of crypto services.

If you exchange crypto-assets for fiat money or crypto-assets for crypto-assets in the future, permission must be obtained in advance. But it is different if you exchange crypto-values ​​for objects other than fiat money or crypto-values. Nothing is regulated for this and therefore does not (yet) require permission. These rules are very similar to the investment services regulation under MiFID II (the second directive on markets in financial instruments).

The requirements for crypto services

For an activity to be classified as a crypto service, the activity must relate to crypto assets as defined by MiCAR. As we have seen, this is formulated very broadly and covers virtually all digital representations of value that are based on distributed ledger technology (blockchain) and can be transmitted and stored electronically. This does not include digital assets that are simultaneously qualified as financial instruments in the sense of MiFID II, as e-money under the second e-money directive or as deposits.

My conclusion: Regulation is one of the most important keys for applications, market penetration and thus the success of cryptocurrencies in the future.

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