In June 2023, the European Union (EU) accomplished a world first, with the introduction of the Markets in Crypto-Assets (MiCA) regulation. No other territory had attempted to regulate the cryptocurrency space up until that point, and so far, no other territory has actively followed in the EU’s footsteps – although many have it on their agenda. Including the UK. But while the EU is to be credited with taking action that others have hesitated over, MiCA has its limitations and detractors, raising the questions of how crypto regulation could be improved upon, and how the UK could benefit from the current instability in the European crypto market.

What’s happening with MiCA?

MiCA has been positioned as a comprehensive regulatory framework for the crypto assets space. But built around the infrastructure used within the regulation of traditional finance, it may be far-reaching without being the perfect fit. Because while the crypto market ostensibly shares many of the features of traditional finance, it is also an entirely unique proposition, known for its innovation and dynamism, and many fear that MiCA will fall short when confronted with the rapid evolution that characterises the space, while simultaneously preventing the innovation that the industry relies upon.

When broken down, the problems with MiCA fall into five main areas.

Regulatory technical standards

MiCA’s regulatory technical standards (RTS) weren’t published until the end of 2024, which was more than 18 months after its introduction. This caused significant uncertainty in the market because no one could predict how the regulations would work, or what they would mean for both the industry and individual players.

Industry development

One of the reasons why there has always been such trepidation around the regulation of the crypto industry is serious concerns over what it might mean for future development and innovation. And MiCA has done little to quell that anxiety. MiCA’s approach to regulation has been the placement of multiple far-reaching high level requirements, as is the case in traditional financial regulation. It would be a sensible move, were it not for the fact that it will in all probability stifle the innovation and growth that the sector is known for. It’s already become far too expensive to start a new cryptocurrency business in the EU. And many of the core areas of compliance simply aren’t financially attainable for the smaller businesses and startups, which will likely mean that they will either leave the market entirely, or move their business to another territory, where regulation is yet to come into play.And this, of course, will carry wider implications. Not only will the crypto businesses leave the EU, some of their investors will follow. All of which could have significant consequences for other sectors of finance and industry.

Penetrability

On the flip side, are the concerns that MiCA is not designed to keep pace with the evolving crypto landscape. Even with comprehensive regulations in place, the crypto space will continue to develop and change – maybe at a slower pace and powered by the larger, more formidable businesses, but it will change nonetheless. That’s the nature of the beast. But while innovation is a positive thing, it presents problems for regulators because of the sheer complexity of the sector’s ecosystem. And there are serious fears that when that evolution happens, it will again open the door to investor exploitation.

Consumers will foot the bill

New regulation inevitably means more expense. With new fees and new fines being implemented, the additional costs will invariably be passed on to the consumer. This is not only unfair, but it holds the potential to deter new investors and drive existing investors away.

Stablecoin rules

Despite the scale of the MiCA regulations, the EU has neglected to cover stablecoins. The vast majority of critics see this as a major mistake, as stablecoins are one of the most volatile crypto assets currently in use. Unstable stablecoins hold the potential to significantly damage both the crypto markets and the wider financial system within the EU. So, without their regulation, the very viability of MiCA must be called into question.

Together, these concerns are pushing the EU’s crypto market into a state of instability, and this presents dual opportunities for the UK.

How could the UK benefit from the problems with MiCA?

In the first instance, the UK presents something of a safe haven for European crypto businesses and investors looking to escape the MiCA regulations. The UK has only ever had a slight presence in the crypto market – as of late 2024, there were around 40 registered crypto businesses in the UK, and only 12% of UK adults owned crypto assets. But UK businesses can take advantage of the current uncertainty and scale – which is something that my company is doing right now. We’re based in the UK and Netherlands, but we have the ability to passport the license in other EU member states. This is enabling us to attract customers from other territories, and we’re already seeing an influx from the EU. There’s plenty of scope for other businesses to do the same.

Secondly, the UK can learn from MiCA’s mistakes. The Financial Conduct Authority (FCA) is already in the process of developing a comprehensive regulatory framework for cryptoassets in the UK, with the intention of implementation in 2026. By assessing MiCA’s weak points, they have the potential to build something stronger, including the regulation of stablecoins. So, while the UK may not be the first to develop crypto regulations, they could potentially become the best. Not only setting the standards for others to follow, but creating a framework that encourages new crypto business, and enhances the UK’s status in the global crypto market.

There is no getting away from the fact that regulation is needed in the crypto space. There is too much fraud, too much exploitation, and too much opacity as things stand. But the way that regulation is approached matters. The crypto space needs a framework that not only allows but encourages innovation and growth. It needs to protect the industry and open the door for crypto assets to join the wider financial markets. But more than anything else, it needs to protect consumers. And with MiCA as an example of how not to do it, this is the UK’s opportunity to get things right.

About Author:

Peter Curk is the CEO of ICONOMI, a leading platform in digital asset management. With a background in finance and blockchain, Peter is passionate about making crypto investing accessible and easy for everyone. Under his leadership, ICONOMI has grown into a trusted name in the industry, offering innovative solutions for individuals and institutions alike.