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  • Writer's pictureFrancesco Greco

Cryptocurrency Regulations in the European Union

Updated: Apr 14

In Brief

  • Cash payments beyond €10.000 will become impossible.

  • Due diligence for transactions of crypto-assets bigger than €1.000.

  • Markets in Crypto-Assets (MiCA) regulation bill.

"Cryptocurrency regulations in the European Union" article cover

Cryptocurrency has seen significant growth in popularity and adoption in recent years, and Europe has emerged as a key market for these digital assets.

With a large and technologically advanced population, a strong tradition of innovation and entrepreneurship, and a supportive regulatory environment, Europe has become an attractive destination for cryptocurrency users and blockchain businesses.


The Growth of Cryptocurrency in Europe

One of the key drivers of the growth of cryptocurrency in Europe has been the increasing awareness and acceptance of these digital assets among the general population. In many European countries, the use of cryptocurrency for transactions and investment has become more widespread, and a growing number of merchants and businesses now accept cryptocurrencies as a form of payment.

This trend has been supported by the development of user-friendly cryptocurrency wallets and other tools that make it easier for individuals and businesses to access and use cryptocurrencies.


Regulatory Framework for Cryptocurrency in the EU

In terms of regulation, Europe has taken a balanced approach to cryptocurrency, seeking to support innovation and growth while also protecting consumers and ensuring the integrity of the financial system.

The European Union has adopted a number of measures to establish a clear and consistent regulatory framework for cryptocurrency, including the Fifth Anti-Money Laundering Directive (AMLD5), which requires cryptocurrency exchanges and other service providers to comply with AML and Know Your Customer (KYC) requirements.

Additionally, the European Central Bank has issued guidance on the treatment of cryptocurrencies under the EU regulatory framework, and some individual countries, such as Switzerland and Malta, have established themselves as cryptocurrency-friendly jurisdictions.

How is crypto regulated in Europe?

The European Union (EU) has taken a major step forward in regulating cryptocurrency, with the European Council approving comprehensive Markets in Crypto-Assets (MiCA) regulation on October 5. Among the many realms it addresses are the prevention of money laundering, consumer protection, the accountability of crypto companies, the environmental impact of the industry, and stablecoins.

The Markets in Crypto-Assets bill is a comprehensive regulation that aims to bring the asset class firmly under the supervision of the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA).

Under MiCA, cryptocurrencies are divided into four categories: crypto-assets, utility tokens, asset-referenced tokens and electronic money tokens (e-money). Cryptocurrencies will be regulated in accordance with their classification.

It attempts to oversee the prevention of money laundering, consumer protection, crypto company accountability, the industry's environmental impact, and stablecoins, which minimize typical cryptocurrency volatility by maintaining collateral in the form of reserves, often of US dollars.

Stablecoins are a particularly important part of the regulation, and the EBA will be overseeing this aspect. MiCA mandates that stablecoin issuers maintain minimum liquidity to prevent crashes like that of TerraUSD.

The MiCA regulations were proposed in a first provisional draft in June 2022, with some changes and updates being made in the following weeks. It does not deal with decentralized finance (DeFi) or non-fungible tokens (NFTs) yet, although officials are likely to tackle regulating these sectors in the future.


The new anti-money laundering (AML) regulation and directive (AMLD6)

The new EU anti-money laundering and combating the financing of terrorism (AML/CFT) rules represent a significant development for the cryptocurrency industry in Europe. These rules extend the existing regulatory framework to cover the entire crypto sector, obligating all crypto-asset service providers (CASPs) to conduct due diligence on their customers, especially on transactions bigger than €1.000.

This means that CASPs will be required to verify the identity of their customers and ensure that they are not involved in any illicit activities, such as money laundering or terrorist financing. The rules also include measures to mitigate the risks associated with transactions involving self-hosted wallets and introduce specific enhanced due diligence measures for cross-border correspondent relationships for crypto-asset service providers.

In addition to these provisions, the new rules also set a maximum limit of €10,000 for cash payments, making it more difficult for criminals to launder large amounts of money.

Overall, the new EU AML/CFT rules are intended to strengthen the existing regulatory framework and close any potential loopholes that criminals could exploit. By applying these rules to the entire crypto sector, the EU is taking a proactive approach to addressing the risks associated with cryptocurrency and ensuring that the industry operates in a safe and transparent manner. This will help to protect consumers and build confidence in the cryptocurrency market, supporting its growth and development in Europe.


Challenges and Opportunities for Cryptocurrency in Europe

Despite the growth and potential of the cryptocurrency market in Europe, there are also challenges and risks that must be addressed.

One issue is the need for more clarity and consistency in the regulatory framework, as the rules and requirements for cryptocurrency businesses can vary significantly from country to country.

The use of cryptocurrencies for illicit purposes, such as money laundering, terrorist financing, and rug pulls is also a concern. There are ongoing efforts to address this issue through regulatory measures and law enforcement cooperation.


The Future of Cryptocurrency in Europe

Looking to the future, the development of cryptocurrency in Europe will be influenced by a number of factors, including the evolution of the regulatory environment, the emergence of new technologies and applications, and the broader economic and political climate.

As the market continues to grow and mature, it is likely that cryptocurrency will become an increasingly important part of the European financial system, with more businesses, institutions, and individuals adopting these digital assets for transactions and investment.

The potential for cryptocurrency to disrupt traditional financial systems and create new opportunities for innovation and growth makes it a topic of continued interest and importance in Europe.

Further readings

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