As the European Commission’s proposed regulation on the markets for cryptocurrency assets (MiCA) is finalized through first readings in the European Council and the European Parliament, a lawyer warned that this could make it difficult for small players to access the European Union’s cryptocurrency market. Other concerns concern the proposed regulatory approval requirement for stablecoins and the ban on interest on fiat-linked stablecoins. In addition, there is an “Elon Musk” clause that prohibits manipulation by “market influencers”.

As such, the EU regulation could harm small crypto players, but also stablecoin users and Elon Musk.

EU regulation harms not only small crypto players, but also stablecoin users and Elon Musk

The EU document was first leaked last September and offers a glimpse of Brussels’ plans to regulate cryptocurrencies, particularly fiat-linked and possible stablecoins, making this bloc the first major jurisdiction to regulate this asset class. Since then, more details about these plans have emerged, which are still controversial among industry observers.

“The ordinance makes crypto projects legally required to create white papers and submit them to regulators, although filings will be declarative and regulators other than stablecoins have no power to approve or reject crypto projects,” wrote Firat Cengiz, a senior executive Lecturer in law at the University of Liverpool in a recent analysis.

However, the regulation creates “a legal and regulatory barrier to the introduction of cryptocurrency projects, which for example requires them to be incorporated as a legal entity in one of the member states.” said the author, emphasizing that all of these new requirements make it difficult for small businesses to enter the market.

Meanwhile, the proposed “Elon Musk” clause in the regulation is another feature that could fuel controversy.

The clause emphasizes that market influencers should not use conventional or social media to push or increase the price of cryptocurrencies once the regulation goes into effect. Such market manipulation can be punished with criminal measures depending on the severity.

In the case of stablecoins, existing stablecoins must obtain approval from the supervisory authorities after the regulation comes into force in order to enable them to be traded in the EU.

Other regulatory aspects related to fiat-linked stablecoins, such as Tether (USDT) and USD-Coins (USDC), in particular the interest ban, “represent an unjustified interference with the rights of financial autonomy,” said Cengiz. And while she argues that stablecoins, when introduced en masse, have the potential to “jeopardize the ability of financial institutions to regulate liquidity at the expense of monetary stability.” .

According to the researcher, the EU legislator is intended to “deter the investment of crypto profits in stablecoins and thus protect the interests of the European banking sector” with the interest ban. Additionally, this protects the interests of the national tax authorities “who would find it easier to track crypto profits if they were converted into fiat rather than held.” in stablecoins.

The regulation does not explain why this entry into financial autonomy is necessary. This ban would deprive European citizens of attractive investment opportunities, especially when one considers that there are fiscal incentives to limit the economic impact of the anticipated lockdown.

Cengiz concluded, adding that “regulatory oversight of stablecoins”.

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