In the recent weeks, both the European Central Bank and the European Commission released major news: Christine Lagarde, President of the ECB, announced that the ECB prepares to be able to issue the digital Euro. This doesn’t necessarily mean that the ECB will in fact issue a digital Euro, however, they will be prepared if the deem it appropriate. Furthermore, the European Commission released more information for their digital strategy and a proposal for regulation of the markets in crypto assets (MiCA). MiCA is a long overdue legal proposal which provides much needed regulatory clarity on digital assets, including cryptocurrencies, security tokens, and stablecoins; the digital Euro will be extremely useful for giving life to many blockchain use cases.
Markets in crypto assets and euro
To date, there has been a somewhat fragmented approach to the regulation of digital assets across Europe. MiCA as a comprehensive framework aims to harmonize regulations across the 27 member states in the EU, and strengthen Europe’s status as an incubator for digital asset innovation. The proposal for regulation covers all cryptographic assets and identifies four categories: Utility tokens, e-money tokens (EMT), asset-referenced-tokens (ART) and security tokens. The first major takeaway: Security tokens that qualify as a financial instrument will be regulated under MIFID II. Furthermore, the focus of MiCA lies on ARTs and EMTs – more commonly known as stablecoins. These will have to fulfil high regulatory standards – which can be interpreted as an answer to other CBDCs, e.g. the Chinese project, and Libra.
This also can be said about the preparations towards a digital Euro. The ECB makes it clear that the reasons behind the preparation are to support digitization, respond to the significant decline in the role of cash as a means of payment, mitigate the impact of future foreign CBDCs and “private digital payments” (i.e. Libra) and strengthen the international role of the Euro. Therefore, both MiCA and the digital Euro can be interpreted as both a security measure against Libra and foreign currencies to strengthen the role of the Euro, but more importantly, as a crucial and long overdue step to foster Europe as a hub for digital innovation.
Both news will heavily impact the European startup scene and therefore our BLOCKCHERS. The EC tries to find a good balance between regulation and allowing for innovation. While blockchain startups will need to act in compliance with the regulation, this is a strong signal for the European ecosystem. As of today, many aspects of blockchain and cryptocurrencies are faced with legal uncertainty – establishing a regulatory framework will build confidence and therefore make the market far more attractive for traditional companies and the financial sector. Hence, both MiCA and the planning of a digital Euro could accelerate the development and adoption of blockchain use cases within the European Union.