EU’s MiCA Crypto Regulations Could Impact Market Liquidity : Bloomberg
New EU cryptocurrency regulations that will take effect at the end of this year are already reshaping the digital token market, especially stablecoins such as Tether’s USDT. Many cryptocurrency exchanges in the EU have delisted the dominant stablecoin USDT to comply with MiCA. While the regulations are intended to increase oversight and prevent crimes such as money laundering, cryptocurrency experts warn They may reduce market activity and fail to fully achieve these goals.
Will MiCA impede market liquidity?
Cryptocurrency executives have warned that the MiCA regulations could reduce market liquidity without achieving its intended goals, potentially making the EU less attractive to digital asset traders at a critical time.
Usman Ahmad, CEO of Zodia Markets, explained that the removal of USDT, the most liquid stablecoin, limits the options for EU customers. While stablecoins like USDT are crucial for cryptocurrency traders to move funds, move funds across borders, and settle traditional assets, concerns are growing over their use in illicit activities, as seen recently with reports of Russian networks using USDT as evidenced by reports of conducting illegal transactions.
However, Tether condemned these illegal uses and emphasized its commitment to preventing such activities.
MiCA requires stablecoins on CEX to have electronic currency licenses
To strengthen regulation of the asset class, MiCA requires that all stablecoins listed on centralized exchanges must be issued by companies with an electronic currency license. Issuers must maintain up to two-thirds of reserves to back their tokens through independent banks and monitor all transactions for payment purposes
While Circle has obtained the license, Tether has not, which could result in its delisting before December 30. Even with MiCA in place, authorities will need better tools to track illegal transactions and are currently not ready. USDT has been widely used for illegal activities, but Tether is working to address this through a new partnership aimed at combating financial crime.
Meanwhile, a market rally comes amid growing expectations that the U.S. will adopt a more crypto-friendly regulatory approach following President-elect Trump’s victory. Cryptocurrency investment in Europe is declining in contrast, with venture capital investment in cryptocurrency startups set to hit a four-year low, raising concerns that it could be left behind in the cryptocurrency market.
encouraging signs
However, there are some encouraging signs. Cryptocurrency ownership in the euro zone has more than doubled since 2022 to 9%, although the European Central Bank has warned that this growth may be affected by changes in survey methodology.
Despite this growth, the removal of Tether (USDT) from the EU platform is expected to significantly reduce liquidity as USDT has the largest number of trading pairs globally. When traders move from USDT to other stablecoins or fiat currency pairs, they may face disruptions. Some exchanges, such as OKX, have seen traders turn to fiat pairs instead of using other stablecoins.
