A landmark piece of cryptocurrency legislation, the long-debated Markets in Crypto-assets (MiCA) bill, has been given the green light from European Union lawmakers.
After a landslide vote by the Economic and Monetary Affairs Committee, the bill is set to take effect in 2024 pending a nod from the full European parliament.
The bill is a “regulatory framework developed to regulate currently out-of-scope crypto-assets and their service providers in the EU and to provide a single licensing regime across all Member States by 2024,” so the official line goes.
Harmonisation is the main intention behind the bill, with the EU’s 27 constituents set to fall under a singular regulatory umbrella.
The question now is: How will this impact the crypto sector here in the UK?
British crypto sector and a wishy-washy government
Strides were being made to bolster the crypto economy under former prime minister Boris Johnson and chancellor Rishi Sunak, but those plans have since taken a back seat under the new cabinet to more pressing concerns.
Crypto regulation is unlikely to return as a matter of interest for prime minister Liz Truss and chancellor Kwasi Kwarteng; not only are they facing trivial issues like inflation and the cost-of-living crisis, they also face the threat of being booted from their own party given the shocking start to their administration.
But if the UK wants to be a competitor in the global crypto economy, it will need to start getting its regulatory house in order.
Japan offers a warning if it fails in this regard.
The Japanese Web3 brain drain
Shinnosuke ‘Shin’ Murata is a Japanese blockchain gaming entrepreneur and co-founder of gaming studio Murasaki.
Prohibitive tax burdens and a nonsensical regulatory regime have forced Shin and his startup out of Japan, to set up shop in the Netherlands instead.
He's not the only one. Even larger companies that can pay the blanket 30% tax rate on digital asset issuances have to contend with the fact that “none of the audit companies are willing to provide accounting for crypto,” said Shin.
Shin reckons a Web3 “brain drain” is taking plan in his native country as startups give up on trying to navigate the bureaucratic obstacles put in front of them.
While the UK has an opportunity to capitalise on this and similar exoduses, it’s in danger of falling by the wayside to the European bloc now that MiCA is on the horizon.
The good and bad of MiCA
Lars Seier Christensen, chairman of blockchain company Concordium and founder of Saxo Bank, believes that MiCA is a positive step for the EU’s crypto sector.
“A uniform environment across all member states would be a formidable trade zone to create in, with more than 500mln citizens,” said Christensen, adding: “Normal taxes are very difficult to handle across borders and such a level playing field across Europe would encourage more investment in the space.”
That sounds enticing for entrepreneurs, but on the other hand, harmonised regulation could actually be counterproductive for EU-based entrepreneurs.
“I chose Europe as a foundation because if one country tightens its regulations, I can escape to another country very easily,” said Shin.
That benefit will disappear once MiCA comes into force, and Shin reckons the UK might start looking more attractive should the EU fail to strike the right balance and the UK succeed in strikig the right one. “Or I’ll just move to Dubai,” he (half) joked.
Here’s hoping the UK parliament sorts its various crises out, though even with inflation and sparring backbenchers aside, there has been little evidence of interest in crypto regulation coming from the new leaders.
Quite the opposite in fact.
We should welcome #cryptocurrencies in a way that doesn't constrain their potential. Liberate free enterprise areas by removing regulations that restrict prosperity. #PolicyExchange #futureoffreedom #shakeup
— Liz Truss (@trussliz) January 30, 2018
“Liberate free enterprise areas by removing regulations that restrict prosperity,” Truss said of cryptocurrencies back in 2018.
One wonders if she still shares the same view.