A leaked version of the European Union’s Markets in Crypto-Assets Regulation – better known as MiCA – has met with a mixed reception.
MiCA will introduce EU passporting for crypto companies, meaning that a licence secured in one EU jurisdiction will be valid in all other member states.
But certain EU nations already have their own crypto regulations, among them Germany and Estonia. Companies that are registered in these countries must meet their local regulatory requirements, which might be far more stringent than those outlined in MiCA.
In EU countries with no crypto regulatory framework, meeting the minimum requirements of MiCA would automatically grant that company access to member countries with more stringent rules, thereby potentially lowering the bar for crypto companies across Europe.
Speaking at the recent Nordic Fintech Week 2022, Marcus Mølleskov, chief risk and compliance officer at crypto payments company Januar, said there is reason to be optimistic about the EU ‘passporting’ mechanism because it would open the door for crypto companies to the entirety of Europe.
Right now, companies need to go through the tedious process of registering in each separate member state to gain access to other EU countries.
But there is a feeling among some in the crypto world that the regulations planned in the EU and elsewhere merely entrench autocracy in an ecosystem that was born in rebellion.
What happens when regulations are divorced from reality?
During the 2007-2008 market crash, the spate of regulations that arose across jurisdictions was not entirely aligned.
“It made for great business for boutique consultancies,” regulatory expert Targ Patience tells Moneyweb. That’s because it required someone with in-depth knowledge of every jurisdiction to ensure that a financial firm was in compliance.
Read:
To do it better in crypto, says Patience, any eventual regulations would need to be a collaborative effort.
SA’s upcoming regulations could be much worse
Kuben Naidoo, deputy governor of the South African Reserve Bank (Sarb), announced recently that the Sarb would bring in crypto regulations within the next 12 to 18 months.
Read:
Crypto regulation could be 12-18 months away
Crypto regulation imminent in South Africa
Unfortunately, the Sarb intends to impose exchange control mechanisms on crypto trading, which could shackle this new form of digital value with stone-age inefficiency.
When Nelson Mandela opened parliament in 1996, he said: “For us, it is not a matter of whether, but of when these [exchange] controls will be phased out.”
And yet here we are, nearly 30 years later, still forcing South Africans to spend a depreciating currency inside SA borders.
And now the same is intended for crypto.
Regulation is necessary, but needs to be in the right hands
That regulations are coming for crypto is a given. For all of the Bitcoin white paper’s hope to create a financial ecosystem divorced from central authorities, the nature of the world makes this impossible.
Once value starts getting exchanged, bad things can happen to good people.
Crypto – just as fiat currency has done – can be used to fund prostitution, drug deals, arms deals, terrorism, and any illicit activity out there.
Crypto can be stolen just as rands and US dollars can be stolen. Without a regulatory framework to rein that in, innocent people are at risk of losing their money.
The concern from the crypto community – whether in the Nordics, Europe or South Africa – is that these unavoidable regulations will take on the air of a schoolteacher pointing their cane at children daring to experiment in science class.
Regulation at the cost of innovation could be catastrophic for the crypto industry. And regulation shouldn’t be created by people who don’t understand the technical side of crypto.
As an example, the blacklisting of the Tornado Cash mixer in the United States, and the subsequent arrest of its developer Alexey Pertsev, had the crypto world up in arms. And rightly so.
That Tornado Cash was responsible for facilitating the transfer of millions of dollars of illicit funds is correct, just as incumbent banks have been used to launder funds for the same for decades. But crypto mixers such as Tornado Cash – tools that allow the obfuscation of the flow of crypto – also have valid use cases, such as for whistleblowers, keeping donations to charities anonymous, and even by providing a means for dissidents to send funds to a cause without fear of being persecuted.
Gibraltar got it right
Gibraltar serves as the model of how crypto regulation can be done right – collaboratively between regulators and stakeholders.
The success of crypto companies in that jurisdiction speaks for itself, with major players such as Huobi and Bullish calling it home. Even Binance was reportedly considering a move there.
The result is that 25% of the territory’s GDP comes from cryptocurrency companies.
Similar success in South Africa might even help push the rand back up to its previous heights – provided exchange controls are obliterated so that foreign crypto companies have fewer restrictions when investing in the country.
Listen: The FSCA’s Brandon Topham tells Ciaran Ryan a key purpose of SA’s crypto regulations will be to hound out scamsters:
* R Paulo Delgado is a crypto writer with an eye for the bizarre and the human stories behind the always fascinating leaps and stumbles of this new asset class.
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