Until a few years ago, there was no common European regulatory framework to legally define crypto-assets and cryptocurrencies in a unified manner. The only harmonized regulation was the requirement for entities providing services related to crypto-assets to be registered and compliant with anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.
Regarding the legal and economic nature of virtual currencies, European bodies consistently stated that they did not fall under the “legal tender” category. However, this regulatory landscape changed due to two regulation proposals drafted by the European Council in late 2021. The first document was the “Markets in Crypto-Assets Regulation (MiCA),” while the second was the “Digital Operational Resilience in the EU Financial Services Sector (DORA).” These regulations were part of a broader initiative called the “Digital Finance Package,” which aimed to regulate crypto-assets and their negotiation (Pilot Regime), digital payments, and DeFi while fostering their development.
Specifically, the MiCA Regulation proposed a definition of crypto-assets stating that they are a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology.” It also provided comprehensive regulation for crypto-assets not falling within the scope of financial instruments as defined by Directive 2014/65/EU and was not already subject to EU regulations on financial services.
The new regulation, which was enacted in June 2023, establishes a harmonized legal framework, ending the “Wild West” atmosphere that has characterized the cryptocurrency industry until now. Under the new rules, providers of services such as electronic wallets and exchanges serving EU customers must be established within the EU and authorized and supervised by national supervisory authorities. Despite this restriction, MiCA allows authorized service providers to offer their services throughout the Union. However, these operators will be subject to strict prudential and conduct rules, as well as stringent regulations against insider trading and market manipulation. They must also explicitly disclose and inform…