EU’s Markets in Crypto-Assets (MiCA) Law (UPSC Current Affairs)

Relevance: GS2 - Effect of policies and politics of developed and developing countries on India’s interests ; GS3 - Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.

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Why in the news?

• The European Parliament approved a new rule governing cryptocurrencies on June 30.
• The Markets in Crypto-Assets (MiCA) law, which regulates cryptocurrencies for the first time in its entirety, is anticipated to set new standards for regulation of cryptocurrencies globally.

What is the significance of the new MiCA law?

• The MiCA law aims to address issues like money laundering, investor and consumer protection, crypto company accountability, stablecoins, and the environmental impact of mining for cryptocurrencies.
• It will control the "wild west" of crypto assets, give legal clarity to those producing crypto assets, and uphold high standards for consumers and investors.
• Additionally, non-fungible tokens are excluded;
• However, the EU may pass horizontal legislation for NFTs in 18 months following a separate evaluation by the European Commission (EC)

What are the provisions of Markets in Crypto-Assets (MiCA) Law?

• After the Luna token from Terraform Labs crashed, the effectiveness of stablecoins, which are claimed to be less volatile than other cryptocurrencies, was called into question.

Liquidity:

• The MiCA would require stablecoin issuers to keep a minimum amount of liquidity on hand to cover any unexpectedly large withdrawals from users.
• The reserves would also need to be safeguarded against insolvency.

Regulation:

• Stablecoins are now regulated by the European Banking Authority (EBA), and stablecoin issuers are required by law to give investors free claims disclosures.

Transaction limit

• A daily transaction limit of €200 million will also apply to the usage of large coins as a form of payment.

Money Laundering

• The EBA is required by MiCA to keep a public list of Crypto Asset Service Providers (CASPs) who are not in compliance .
• For CASPs based in nations deemed to be at high risk of money laundering activities, as well as nations that are "non-cooperative" for EU tax reasons, further checks will be necessary in accordance with the EU Anti-Money-Laundering (AML) framework.

Environment

• Crypto firms will have to disclose their environmental and climate footprints under MiCA.
• The European Securities and Markets Authority will create technical regulatory standards for the display, substance, and methodology of such information.
• The EC will also be required to submit a report on the effects of digital assets on the environment and the adoption of minimum sustainability criteria for mining processes, particularly the proof-of-work method that increases overall computing power.

How will it affect India?

• India's cryptocurrency legislation appears to be now taking a backseat. Industry leaders and analysts claim that taxation is the government and industry's primary issue.
• India began taxing cryptocurrency income at a rate of 30% in April and added a 1% tax deduction at source on July 1.
• The trading volumes and revenue of cryptocurrency exchanges have decreased as a result of this and the general negative market.
• Before making firm conclusions, Indian regulators are also expected to take US-developed standards into account.