The European Union’s upcoming crypto regulations are already causing significant changes in the digital token market, particularly affecting stablecoins like Tether’s USDT. Many EU crypto exchanges have decided to delist USDT in order to comply with the Markets in Crypto-Assets (MiCA) regulations set to come into effect by the end of the year. While the main goal of these regulations is to enhance oversight and prevent financial crimes such as money laundering, there are concerns among crypto experts that these measures could potentially hinder market activity without fully achieving their intended objectives.
One of the key concerns raised by crypto executives is that the MiCA regulations might lead to a reduction in market liquidity, which could make the EU less appealing to digital asset traders at a critical juncture. Usman Ahmad, the CEO of Zodia Markets, pointed out that the removal of USDT, which is one of the most liquid stablecoins, limits options for EU clients. Stablecoins like USDT play a crucial role for crypto traders in facilitating fund transfers, cross-border transactions, and asset settlements. However, there have been growing concerns about the misuse of stablecoins for illicit activities, as evidenced by recent reports of Russian networks utilizing USDT for unlawful transactions.
In response to these concerns, MiCA stipulates that stablecoins listed on centralized exchanges must be issued by companies holding an e-money license. These issuers are required to maintain a reserve of up to two-thirds of the backing for their tokens with an independent bank and closely monitor all payment-related transactions. While Circle has already obtained this license, Tether is yet to secure it, leading to the possibility of its delisting by the deadline of December 30. Despite the implementation of MiCA, there is a recognized need for more effective tools to track and prevent illegal transactions, a capability that is currently lacking. Tether has been proactive in addressing concerns about the illicit use of USDT through a new partnership focused on combating financial crimes.
As the U.S. presidential election approaches, there is growing anticipation that the U.S. will adopt a more favorable regulatory stance towards cryptocurrencies, potentially triggering a market upsurge. In contrast, Europe is experiencing a decline in crypto investments, with venture capital funding for crypto startups projected to reach a four-year low. This trend raises apprehensions about Europe falling behind in the global crypto market landscape.
Despite these challenges, there are positive indicators within the euro area, where crypto ownership has more than doubled to 9% since 2022, according to the European Central Bank. However, it is important to note that this increase may be influenced by changes in survey methodology. The removal of Tether (USDT) from EU platforms is anticipated to have a significant impact on liquidity, given that USDT has the highest number of trading pairs worldwide. Traders may experience disruptions as they transition away from USDT towards other stablecoins or fiat pairs. Some exchanges, such as OKX, have already observed a shift towards fiat pairs as traders navigate the changing landscape of stablecoin availability.