MiCA, Europe's opportunity

There’s a coordinated effort underway in the US by various regulators and government agencies to smother the crypto industry by cutting off its access to banking services. Nic Carter wrote a great piece that sheds light on what is happening.

To say that the US is currently hostile towards crypto would be an understatement. As a result, entrepreneurs are starting businesses elsewhere, existing businesses relocating and international companies instating hiring freezes on US employees. Some US VCs have also paused their investment activity. The US, which has always been at the forefront of new technologies, is in the process of relinquishing its role as a leader in crypto.

My expectation is that the US will ultimately realise the strategic importance of the industry and reverse its current stance, though the timeline in which that will happen isn’t clear. What is clear, however, is that this crisis is an opportunity for other regions to fill the void left by the US and position themselves as industry leaders.

Some of the leading candidates that can step up include Hong Kong and Singapore. Both places have spawned some of the world’s largest crypto companies and enjoy a robust investor community. They are also rivals continuously engaged in a battle for economic supremacy, a dynamic that can compel them to compete over crypto. The UAE has recently become a more popular destination for crypto founders and investors, and there is some cautious optimism in the UK with Prime Minister Rishi Sunak appearing to be crypto friendly.

As a European-based investor, however, it’s my hope that Europe seizes the opportunity to become the global leader in crypto. While it's always been my hope, I also think it has a good shot at doing so with the introduction of MiCA.

MiCA, short for Markets in Crypto Assets, is an EU-wide regulatory framework for crypto. It is a unified framework that will apply across all 27 EU member states, meaning industry stakeholders need to follow just one rulebook.

Globally, innovation in crypto has been made much more difficult due to the absence of a clear and consistent set of rules. It is very difficult for founders to build companies and investors to provide capital to those companies when the rules of the game are either not known, applied radically differently across jurisdictions, or subject to change at a whim.

MiCA represents the most sophisticated and far reaching regulatory framework for crypto in the world that if implemented successfully, could be a boon for innovation in the EU.

While MiCA will be formally voted in by the EU on April 19, a lot of the details need to be ironed out over the next 12-18 months. Are DeFi protocols required to fully comply with MiCA and KYC / AML all their customers, how is decentralisation defined and measured, what’s the distinction between a front-end and a protocol? These are all questions that need an answer and the ultimate success of MiCA rests on whether questions like these are answered well. It is important that MiCA doesn’t strangle innovation by burdening industry participants with overregulation, but fosters it by providing practical guidelines.

Europe has a chance to become a global leader in what I believe to be one of the most important new technologies of our time. A leader that can attract the best founders in the world and whose regulatory framework sets an example for everyone else. I hope Europe seizes that chance.