Europe has built the world’s first comprehensive crypto rulebook through MiCA (Markets in Crypto-Assets Regulation), which has the potential to be the opening act of Europe’s regulatory leadership of crypto.
Whilst MiCA offers greater security and protection for users, more importantly, it provides a philosophy that with clear, standardised guidance for crypto firms, the industry can scale responsibly. However, cracks are beginning to show, as calls for a “MiCA 2.0” are growing, whilst other countries are rapidly evolving their own forward-thinking regulatory frameworks. Some suggest that MiCA 2.0 could address gaps in the current framework that already exist, as well as new gaps that unfold as technology advances in the nascent crypto space.
The First Major Crypto Regulatory Framework
MiCA is the first major framework of its kind, setting out clear requirements for cryptoassets activities such as custody, stablecoin issuance and token listings. Providing established guardrails for crypto firms to do business is essential in building trust and confidence amongst investors, and is already driving institutional investment and deepening liquidity across the EU.
MiCA also harmonises rules across all 27 member states, providing a single rulebook with passporting rights that allow crypto firms to operate throughout the region. National regulators are responsible for day-to-day supervision of MiCA, whilst ESMA (European Securities and Markets Authority) acts as the central body ensuring MiCA’s standards are upheld and consistent throughout the region.
Navigating Europe used to mean registering for VASP licenses in each jurisdiction which was time consuming and costly. Passporting changes that equation by saving time and money which VASPs like Gemini can invest into expansion to new markets and product innovation.
Global Competition Heats Up
MiCA may be extensive, but other jurisdictions are moving quickly to create an environment that welcomes crypto investment and innovation.
In the US, the election of a pro-crypto Administration under President Trump has cemented the countries’ ambition to make the US the “crypto capital of the world”. That began with full passage of the GENIUS Act, and passage of the CLARITY Act in the U.S. House of Representatives. The legislation unifies the patchwork of differing agency roles (SEC, CFTC, FinCEN) at the federal level who previously took a costly ‘regulation by enforcement’ approach. These accelerated reforms signal that the US is quickly closing the gap with Europe.
Similarly, Singapore has also been ramping up regulatory efforts. The Monetary Authority of Singapore (MAS) has been rigorous in its licensing process under the Payment Services Act, particularly for exchanges and custodians. At the same time, MAS has supported experimentation through Project Guardian, which pilots tokenisation of real-world assets with major banks such as Standard Chartered, and its FinTech Regulatory Sandbox, allowing controlled experimentation with new business models. Its focus on financial integrity has reassured policymakers, while its willingness to support innovation has attracted global firms, positioning it as an Asian crypto hub that could rival the EU.
Clear Oversight & Industry Partnership
MiCA is a bold step in the right direction, yet there are still a number of ways it could be improved to increase Europe’s chances of maintaining this leadership role. Calls for a second-phase legislative review, often described as “MiCA 2”, reflect questions surrounding activities not explicitly covered by the current framework (such as rapidly emerging use cases like real-world assets), burdensome requirements, and cross-border implementation standards.
Some have suggested that MiCA is not fully fit for purpose. Built with traditional finance in mind, such as securities, banking and payments, it fails to appreciate the uniqueness of crypto. It’s not hard to see the similarities between MiCA and MiFID – a framework designed to regulate investment firms and trading venues in traditional financial markets. Whilst this may benefit MiFID license holders by easily applying best practices to their MiCA ambitions, it poses real operational challenges for smaller players with limited resources. The settlement and redemption requirements, token listings, and disclosure requirements in MiCA are no small feat. Therefore, a future version of MiCA should incorporate industry feedback and supervisory learnings to better reflect the realities of crypto markets.
Additionally, the foundation of MiCA’s passporting success is underpinned by a ‘mutual trust’ between the national regulators approving and overseeing MiCA within crypto firms. Despite ESMA playing a key role in ensuring MiCA standards are upheld fairly throughout, countries such as France argue that there are inconsistencies in implementation at a national level, and have threatened to block passporting. This fundamentally threatens the effectiveness of MiCA and would be a huge shift in regulatory norms in the EU. Whilst Europe’s Head of Markets Supervision, Verena Ross, recently expressed ESMA’s interest in taking back primary oversight of regulating crypto companies under MiCA at the EU-level, MiCA should be given the time to succeed, much like with MIFID II, which many believe is now one of the best regimes in the world.
Setting the Benchmark
It’s no longer a question whether crypto will be the future of finance, but instead the question is who will lead it. With MiCA in place, the EU has taken a bold first step, creating a sound regulatory framework that is already attracting significant investment into the region.
In the meantime, other countries are benefiting from a second-mover advantage to learn from MiCA’s inefficiencies, and racing to create a competitive regulatory environment that balances growth and innovation. Whilst there are clearly still areas to be improved which a ‘MiCA 2.0’ could eventually address, open dialogue, trust and time will help to ensure its long-term success and that the EU can lead the next wave of crypto adoption.