The European Parliamentary Research Service Calls for Tighter Crypto Regulations in Countries Outside the EU
These days, the most widely discussed crypto topics are not the effects of the latest crypto winter, the new coins emerging on the market, how to navigate crypto volatility or how to buy Ethereum and other digital assets safely. The most pressing issue at the moment is represented by crypto regulations or lack thereof. This seems to be the biggest concern for people in and outside cryptocurrency circles and rightfully so. The regulatory landscape of crypto is confusing, to say the least, and it’s increasingly difficult for both consumers and providers to make sense of it.
Up until recently, these matters didn’t seem to draw much attention, but with the growth of the cryptocurrency industry and digital assets products and services expanding their reach, the topic of crypto regulations has been put higher on the agenda of lawmakers from all around the world, as highlighted by a new report from The European Parliamentary Research Service (EPRS).
The case for tighter crypto regulations
The report issued by the European Parliamentary Research Service pointed out several issues related to the development of legal frameworks for crypto assets that agencies in charge of regulating financial markets in and outside the European Union should be aware of.
To put things into context, at the moment, the European Union is working towards the implementation of the Markets in Crypto-Assets Regulation (MiCA) Act which is supposed to come into full effect by December 2024. As the most encompassing set of crypto regulations to date, MiCA targets the issuance and provision of digital asset services and products and covers assets that are not regulated by existing financial services legislation.
It seems that the European Union is one step ahead of other countries when it comes to crypto regulations, and that obviously puts them in a position to offer recommendations in this respect. The report emphasized the importance of the MiCA Act, focusing on the implications it can have on the EU’s financial market. The main concern expressed by the report’s authors is that of financial stability.
According to them, the crypto policies enforced by regulators in non-EU countries where MiCA applies can pose a risk to the EU’s financial stability and autonomy. This shows that now more than ever regulatory agencies from all over the world should come together to cooperate and create a cohesive and coherent regulatory environment for crypto.
The EPRS report states that the currently fragmented regulatory landscape comprising clashing legal provisions that differ from one country to another represents a risk not only to the EU’s financial system but the entire crypto market.
The lack of clear guidelines and a standardized set of rules and regulations could amplify the volatility and uncertainty already present in the market. That can have a negative impact on all stakeholders, causing people to lose confidence in crypto and making the market less appealing for both individual and institutional traders and investors.
Another concern mentioned in the report has to do with the impact that conflicting regulations can have on the mainstream adoption of stablecoins. This distinct category of crypto-assets has experienced a significant increase in popularity over the past few years, but the fact that lawmakers are still struggling to come up with viable solutions to regulate the sector might discourage consumers from using stablecoins and thus hamper their progress.
The report also talks about the United States as the most eloquent example of a fragmented regulatory environment for crypto. The crypto market in the US is governed by a number of federal and state laws that overlap and create an intricate and difficult-to-navigate regulatory labyrinth. This creates an unfavorable environment for crypto companies, prompting them to set up shop in other more crypto-friendly jurisdictions.
Are crypto regulations truly necessary?
Considering all the arguments brought in favor of tighter regulatory oversight of the crypto market at the global level, one would have a hard time finding arguments to oppose these developments. And yet, a lot of critics still argue that regulating crypto is a huge mistake and could cause irreparable damage to the market.
Probably the strongest claim to support this line of reasoning is related to the decentralized nature of digital assets. The very reason people became interested in cryptocurrencies is that they lacked oversight from central authorities like banks and governments and could provide an inclusive and censorship-free alternative to fiat money. Therefore, regulating crypto would come against decentralization and contradict the very core of their existence.
Nevertheless, the fact remains that the cryptocurrency market is extremely unstable and poses great risks for traders and investors. This has been proven time and time again by the numerous bear and bull markets and the crypto winter more recently which have left a mark on the industry and investors’ budgets.
Looking at things from this perspective, it becomes clear that the introduction of crypto regulations can benefit the market by putting an end to these extreme waves of rise and decline and protecting investors’ assets and interests. A safer crypto market can boost investors’ confidence and increase the appeal of digital assets, which will in turn facilitate widespread adoption of crypto services and products.
All signs point toward the necessity of crypto regulations, and lawmakers are clearly aware of this. The fact that the U.S. Securities and Exchange Commission (SEC) has almost doubled the size of its crypto-asset enforcement team in 2022 and has recently increased scrutiny of crypto providers is a clear indicator in this regard.
Cryptocurrencies represent a novel asset class that poses numerous challenges to regulators. But no matter the difficulties, finding solutions to bring these assets in line with other markets from a regulatory standpoint is an absolute necessity.
In a way, the EPRS report merely highlights something that we’ve all known for some time: the crypto industry can’t continue to operate without a solid regulatory framework in place. This seems to be the next logical step in the evolution of digital assets and the only way forward for this innovative industry.