Circle says non-compliant stablecoins will 'vanish' from the EU in the short to mid-term

As the EU’s Markets in Crypto Assets (MiCA) regulation gets underway, Circle’s EU Strategy and Policy Director Patrick Hansen and Chief Strategy Officer Dante Disparte expect a “transformative” year ahead for the European crypto market.

With key implementation dates of June 30 for stablecoins and Dec. 30 for crypto asset service providers, “MiCA could be to crypto assets, what GDPR was to privacy,” they wrote in a blog post.

Both local and global stablecoins will either comply with the new regulation or “vanish” from the EU market in the short to mid-term, Hansen and Disparte said, citing recent announcements from crypto exchanges such as Binance, Bitstamp, Kraken, OKX and others that are either delisting or phasing out non-compliant tokens in the region, at least for certain product offerings.

“More such announcements will follow as the year progresses and the reality sets in that the EU is now a zero-tolerance market for loosely regulated ‘internet funny money,’” they added.

The Circle strategists also expect the EU market to “localize, institutionalize, professionalize and likely consolidate” in the months ahead, as evidenced by Robinhood’s recent proposed $200 million acquisition of Bitstamp — the oldest running crypto exchange, with over 50 licenses and registrations globally.

Despite “excessive regulatory protectionism” within the law, MiCA represents an opportunity to grow the European crypto asset market, the strategists argue. This includes increased growth and competition for Euro-denominated stablecoins while on-shoring dollar-denominated equivalents, with token issuers, exchanges and crypto asset services providers (custodial wallet providers) required to align to protect consumers and broader markets.

Are crypto market recipients ready for MiCA?

“It is worth asking whether broader crypto market participants are ready for MiCA’s onset, or did they mistakenly treat MiCA like Y2K — a probable event with no consequence, or a serious deadline that would radically transform crypto market structure,” Hansen and Disparte said, with Circle spending years preparing for it.

Foreign, unregulated exchanges will face significant restrictions, according to the strategists, making it “exceedingly difficult, if not impossible, to operate on a reverse solicitation basis.” Conversely, entities that can overcome the regulatory hurdles are likely to gain market share in the region, they said.

Circle also argued that MiCA’s token issuance framework, which goes beyond just stablecoins, will attract global teams, mitigating the regulatory uncertainty in other jurisdictions and accelerating the EU’s competitiveness in digital assets.

MiCA will also provide strong protections against market abuse and insider trading in line with traditional finance, the strategists noted, adding “MiCA’s requirement that token issuer white papers carry legal and regulatory weight akin to an investor prospectus, is a good example of these new standards at work.”

However, uncertainty remains regarding the dual categorization of e-money tokens as crypto-assets and e-money, the final publication and application of technical standards, the specific disclosure and liability obligations for exchanges, and how crypto assets are allowed to interact with the real economy, Hansen and Disparte said.

This has led some EU policymakers to contemplate “MiCA 2.0,” potentially also addressing NFTs and DeFi, among other areas, they added, with a substantial portion of MiCA's implementation work still ahead and its practical success to be seen over the next few years.

Will MiCA impact US crypto policy?

As crypto rules are implemented in the EU, one of the largest markets globally, other key jurisdictions cannot afford to ignore its implications, the strategists wrote, with MiCA standards “poised to shape business practices and emerging regulations on an international scale.”

Focusing particularly on key markets in the U.S. and UK, the longer the regulatory vacuum for crypto assets remains in those jurisdictions, the greater the global impact of MiCA is likely to be, Hansen and Disparte added.

While certain MiCA requirements on stablecoins such as the amount of reserves to be held as bank deposits may need to be revisited to avoid unintended consequences, the U.S. and UK should leverage the EU's experience and adopt stablecoin regulations promptly to maintain global competitiveness, they argued.

"Ultimately, a coordinated approach among the US, the EU, and other major jurisdictions will be essential to pave the way for future regulatory recognition and to ensure an emerging internet financial system is rules-based," they concluded.

Circle earns license to issue USDC and EURC under Europe's MiCA

Circle became the first global stablecoin issuer to become licensed and approved under MiCA, CEO Jeremy Allaire announced at a Paris press conference on Monday.

In December, Circle obtained a digital asset regulatory license in France and will now launch its MiCA-compliant stablecoins in Europe under its French entity, meaning Circle can issue both its USDC +0.094% and EURC -0.27% stablecoins under the stringent crypto regulatory framework.

USDC is the second largest USD-pegged stablecoin, drawing in 20% ($33.9 billion) of the total $168.3 billion stablecoin supply, according to The Block's data dashboard .

MiCA was approved by the European Parliament in April 2023, aiming to create uniformity in crypto regulation across the EU, with the rules being implemented in stages.

As part of the framework, stablecoin issuers must comply with certain enhanced regulatory requirements from June 30. Other provisions are being phased in over time, with full compliance for all aspects of the regulation required by the end of the year.

Rival stablecoin issuer Tether, which offers the largest USD-pegged stablecoin, USDT, recently raised concerns over how MiCA applies.

Tether CEO Paolo Ardoino told The Block last month that the EU’s MiCA regulation “contains several problematic requirements” that “could not only render the job of a stablecoin issuer extremely complex but also make EU-licensed stablecoins extremely vulnerable and riskier to operate.”