what is the current status of crypto in Europe?

what is the current status of crypto in Europe?

limits on stablecoin trading KYC on all nft marketplaces banning d5 protocols and crashing BTC's price on purpose to get rid of proof of work are just a few of the insane proposals that have been floated as part of a massive crypto bill in the European Union that will soon become law that's why it's high time for me to give you a bit of background about the European European union and its crypto bill tell you exactly what it says and what effects it could have on the crypto market when it's passed.

  the European Union began as a special economic zone after the second world war and consisted of a handful of European countries the rationale was that lots of commerce between countries would deter the possibility of another war from arising so far so good the European Union as we know it today was officially established in 1993 and in the years that followed a series of agreements and union institutions were established such as the Schengen zone for free travel between European countries and the European economic area for free trade between European countries in 1998 the European central bank was established and in 2002 it introduced the euro currency.

  the European countries which use the euro as their national currency make up the eurozone which is yet another component of the European union's complex architecture today the European Union consists of 27  countries and the eurozone consists of  19 countries this is important to note because the  European Union is in the process of putting together a digital euro and as we've seen there seems to be a  correlation between cbdc rollouts and crypto crackdowns as an institution the European Union consists of seven smaller institutions and for the purposes of this video you only need to be familiar with three the European European Commission the European parliament and the European council note that I will keep things super simple for the sake of both our sanities the members of the European European commission are elected by the governments of European European countries.

 it is the only institution in the European European Union that has the power to pass laws the members of the European Parliament are elected by the citizens of European countries and it can ask the European Commission to draft laws on its behalf the European council consists of the leaders of European European countries and it can likewise ask the European Commission to draft laws on its behalf when the European Commission wants to pass a law it drafts a bill and sends it to the European Parliament and the  European Council for debate discussion amendments you know all that boring stuff once both parties agree the bill becomes law but there's a small caveat here there are technically three types of laws the European commission can pass.

 the first is a regulation that applies to all European countries regardless of their own national laws the second is a directive which means each European country can decide for itself how it wants to implement the law and the third is a decision that relates only to select countries companies or citizens in the European Union now if the name didn't give it away the European Union regulation on markets in crypto assets or mica for short will become a regulation once it's passed meaning it will overrule all existing laws European countries have when it comes to cryptocurrency the mica bill was tabled by the European Commission in September 2020 and was passed on to the European parliament and European council for deliberation shortly afterward for more than a year it took the form of mostly meaningless deliberations between these two parties a few months ago.

 however the mica bill  started making crypto headlines and  that's because of some of the ridiculous  proposals some members of these European  institutions wanted to put in it which  include the sort of things  bitstamp's recent crypto report you  might recall that Europe isn't all that  interested in crypto compared to other  regions around the world  this is another part of why the mica  bill flew under the radar for so long  and why it subsequently caught the  crypto industry off guard  fortunately crypto lobbying groups in  the EU were able to mobilize in time to  convince members of the European  Parliament to remove the proposed proof  of work ban from the microbial in march  a vote that was uncomfortably close  as always the impetus for the  proof-of-work ban was because of  unjustified environmental concerns and  you can learn more about why that's  nothing more than fud using the link in  the description  now if all of this wasn't crazy enough  most of the discussions about mica are  currently taking place behind closed  doors.

  this means that nobody really knows for  sure what it will look like once it  becomes law and one of the only reasons  we know anything at all is because of  leaks to the press  now this is why i had one of my  colleagues here at the coin bureau reach  out to Patrick Hansen a European crypto  policy expert and hedge fund advisor  who's been posting updates about the  mica bill on Twitter  Patrick has actually been the source for  many of the crypto media articles about  the mica bill and i strongly suggest  following him on Twitter if you live in  Europe or even if you're just interested  in keeping up with this unbelievable  crypto bill  as a result of his previous experience  Patrick is on first name terms with a  few European politicians and he's been  actively discussing crypto regulations  with them ever since Micah was tabled in  September 2020 including the very  politician behind the bill  for what it's worth Patrick said that  this particular politician is not  anti-crypto they just want to create  regulatory clarity for the European  crypto industry the same as in the  united states and elsewhere .

 unfortunately not all EU politicians want to use regulations for pro-crypto purposes another important thing that Patrick pointed out is that other controversial crypto proposals are snaking their way through the pipes of European bureaucracy which aren't related to mica namely an extreme version of the travel rule which would see every crypto transaction reported to EU authorities now whereas the mica bill has its origins in a politician's quest for regulatory clarity the travel rule has its origins in the infamous financial action task force or fat f whose so-called crypto recommendations are being slowly rolled out as laws around the world more about that in the description now as far as Patrick can tell there are three reasons why the European Union is starting to clamp down on cryptocurrency the first reason is a report by the European banking authority from 2019.

  which found that cryptocurrency does not fall under EU law and this means new laws are required the second reason is the EU's fifth anti-money laundering directive amld5  which as the name suggests and as you'll hopefully recall requires each European country to come up with their own money laundering regulations apparently many European countries have not implemented amld5  the third reason is none other than facebook's digital currency project which was initially dubbed libra and then rebranded to dm this was its name when the project died earlier this year now I'll quickly point out that dm was recently resurrected as a crypto project called Aptos with 200 million dollars IVC VC funding I digress libra first reared its head in 2019.

  it's safe to say that every central banker around the world pooped their pants at the possibility of a big tech company displacing their own centrally controlled currencies since that time the rapid adoption of cryptocurrency around the world due to things like inflation and the seizing of citizen and central bank assets seems to be a fourth reason why the  European Union union is starting to get really concerned about cryptocurrencies especially dollar-backed stablecoins according to Patrick's estimates the current mica bill could be approved as soon as this summer gave that it's entered the final stage of deliberation between the three European institutions I mentioned earlier at which point there would be a 6 to 24-month  window for the regulations to actually roll out this begs the question of what we could see once the mica bill comes into force.

you can find the long answer in the text of the bill itself which comes in at a hefty 106  pages now I don't know about you but in this case, I prefer the short answer given by the experts which includes include our friend  Patrick Hansen from a bird's eye view the mica bill seeks to set standards for things like the transparency of crypto projects the governance of crypto projects and the custody of cryptocurrencies all in the name of user protection free-market competition you know the usual buzzwords in contrast to most crypto regulations being proposed around the world the mica bill actually takes some time to define the different types of cryptocurrencies its regulations apply to and it identifies three distinct crypto categories which of course come with their own sets of crypto regulations.

  the first category of cryptocurrency is  quote utility tokens which includes  cryptocurrencies like chain links link  decentralized mana and other  cryptocurrencies with their own unique  utilities interestingly this category  also includes bitcoin's btc ethereum's  eth and possibly even nfts  the mica bill specifies that in order to  sell a utility token or list it on a  cryptocurrency exchange the team or  company behind the crypto project must  provide a white paper to the relevant eu  authorities explaining how their  cryptocurrency works  obviously this requirement doesn't apply  to cryptocurrencies like btc and eth  not surprisingly this requirement also  doesn't apply to any cryptocurrencies  sold to so-called qualified investors  aka rich folks  the second category of cryptocurrency  according to the mica bill is quote  asset reference tokens or arts arts  include any cryptocurrencies that  maintain a stable peg thanks to a basket  of multiple assets this presumably  includes decentralized stable coins like  make a dao's die but this isn't entirely  clear  oddly enough mica specifies that arts do  not have to register with regulators so  long as their market cap doesn't exceed  5 million euros which is a very low  threshold to say the least  if an arts market cap does exceed 5  million euros.

 however, its issuer must register with regulators and abide by a  series of stringent requirements regarding reserves holders of arts are also not allowed to earn interest of any kind as a cherry on top the European European banking authority has the power to step in and slap on additional requirements for an art issuer if the market cap of their art becomes too large in the era's eyes the third category of cryptocurrency according to the microbial is quote e-money tokens or emts which includes centralized stable coins like tethers usdt and circles used the mica bill will subject EMTs to more or less the same rules as arts meaning they don't have to jump through too many regulatory loopholes so long as their market caps remain small.

 emt issuers cannot allow emt holders to earn interest the only real difference is that emt issuers will still have to register as an electronic money institution so that  European regulators can make sure their EMTs don't threaten the integrity of the euro emt issuers get their own cherry on top too because if their EMTs grow large enough to be considered quite significant by European banking regulators you can bet that they will come unknocking as Patrick pointed out in an article for Stanford law school the mica bill's crypto rules do not seem to apply to security tokens which include stuff like tokenized stocks as mentioned earlier however the microbial crypto rules do seem to apply to nuts and it's possible that they could apply to nft marketplaces or even not creators themselves on that note.

 anyways as you can imagine the mica bill has had its fair share of concerns and criticisms from the crypto community and Patrick identified three in his aforementioned article for Stanford law school first the mica bill's definition of a  utility token is very broad as it could potentially be applied to any token that lives on a blockchain hence all the concerns around nfts  Patrick and others argue that this broad definition could seriously stifle crypto innovation in the European Union the second concern with the microbial relates to decentralized finance particularly the governance tokens that are used in d5 protocols like making a dao uni swap and arve because d5 protocols aren't legal entities this would make it impossible for them to register with the relevant authorities and though the microbial's rules may not apply to existing d5  protocols they would almost certainly apply to future d5 protocols which would again stifle crypto innovation.

  now the third and biggest concern with the mica bill involves EMTs specifically stable coins in short stable coins like usdt and music would almost certainly count as quote significant in the eyes of European regulators this would require their parent companies to register with European authorities and be subject to strict capital controls or else they'll be Europeandelist European cryptocurrency exchanges and potentially made unavailable to European crypto traders and investors all together Patrick goes as far as to suggest that the stringent stablecoinstable coin proposals in the mica bill prove that European regulators have become paranoid about the possibility of a privately issued stable coin challenging the euro ever since Facebook released libra in 2019.

 I reckon he's right at the end of his article Patrick points out that the European commission's own impact assessment of the proposal suggests that crypto startups would probably have to spend tens of millions of euros on regulatory approval which would basically be the nail in the coffin for the European crypto industry as Patrick Patrick pointed out in another  Stanford article about the mica bill Europe's generally aggressive regulations have killed its competitiveness with not a single tech giant hailing from the region to add insult to injury European representation is declining on the leaderboard of the world's largest 100  companies and Europe's share of global equity markets has consistently been cut in half.

 over the last couple of decades then again you could argue that all these evaluations are just one big market bubble so what does the mica bill mean for crypto well quite a bit I'll start by reiterating that nobody really knows what the mica bill will look like when it becomes law one thing is for certain though and that's that stablecoins are in the crosshairs of the European union's regulatory sniper scope or should I say the sites of its bazooka as far as Patrick can tell there's a  very good chance the EU will put all those stringent stable coin regulations in place and that's bad news for crypto this is again because the European Union is worried that stablecoins could undermine the euro and, to be honest, they should be afraid.

 this is because the market cap of stablecoins has been growing at an exponential rate along with their actual adoption Argentina Venezuela and Ukraine are a  few countries that have turned two stable coins and Myanmar's government in exile even declared usdt as the country's national currency earlier this year besides providing a hedge against high local inflation stablecoins allow for instant settlement and little to no government control which is a nice thing to have when you're living in a  totalitarian country, more importantly, stablecoins make it possible for the free market to set interest rates on lending and borrowing rather than the central bank and the mica bill's emphasis on preventing stablecoin holders from earning interest is proof that this is something the European Union is especially concerned about.

 now for context interest rates in the eurozone hit zero in 2012 and have been negative since 2014  this is arguably the primary reason why a thing like property values in most European countries have gone through the roof since then negative interest rates also make stablecoins a very attractive alternative to Europeans holding on to large amounts of fiat or simply trying to save and the longer rates stay negative in the eurozone the more attractive stablecoins will become now this wouldn't necessarily be a  problem if the stablecoins in question were pegged to the euro but all the larger stablecoins are pegged to us dollar and some of their issuers are regulated and therefore controlled by the u.s government.

 now I never understood why that was until Patrick posted a thread about it on Twitter it all has to do with the assets backing stablecoins in circulation if you watch my video about the assets backing the largest stablecoins you'll know that music and bus are backed primarily by u.s government debt this is because circle and Paxos can earn interest on the reserves of their users while simultaneously being confident that they can redeem stable coins for cash at any time since the u.s bond market is very liquid it also subsidizes the u.s government with foreign money but that's a topic for another time logically the issuer of a regulated euro-denominated stablecoin would likewise want to back it with European government debt to earn a safe yield.

 but   euro interest rates  are negative and this means there's  really no financial incentive to create  a euro stablecoin on the issuer's end  as it so happens the european central  bank is set to raise interest rates  above zero for the first time in a  decade later this year and assuming it's  successful this could set the stage for  the launch of a euro stablecoin  this assumes that mica doesn't kill the  prospect of a euro stablecoin with a  regulatory noose before that happens and  it's one of the many arguments that  patrick is bringing to the table in his  discussions with european politicians  to paraphrase part of patrick's  conversation with one of my colleagues  the european union should compete rather  than retreat when it comes to  cryptocurrencies and stable coins  because these technologies will continue  to develop regardless of whether it  embraces them or not  i would add an argument from chanalysis  co-founder jonathan levin and that's  that regulating crypto technologies into  oblivion constitutes a national security  threat because then you really have no  idea what's being developed or how  quickly it's being adopted by your  citizenry  this is one of the many epic arguments  jonathan made during a recent crypto  hearing in front of us politicians.