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EU cracks down on cryptos! Will EU's crypto regulations spark an offshore trading boom?


EU crypto regulations

The diligent Eurocrats are once again arriving to protect Union citizens from themselves and save them from the dire consequences of personal freedom. This time, the issue at hand is the overseas crypto exchanges and other entities in the realm of cyber assets.


Last year, as many Europeans would probably prefer to forget, the European Union enforced a regulation known as MiCA (Markets in Crypto-Assets). This magnum opus of Eurocratic legislation is supposed to come into effect from January of this year – or "right now," at least in theory (in practice, it will take some time before various authorities implement it).


However, there's little reason to celebrate. These regulations, officially designed to "protect" investors and holders, in practice severely undermine their independence. Apart from other bureaucratic burdens on businesses in this industry (licensing requirements, mandatory regular reporting, etc.), MiCA lays the foundation for aggressive surveillance of private cryptocurrency assets.



Of course, this is justified by the desire to combat "tax fraud." What will those interested in keeping their crypto wallets away from the eyes of European tax authorities do in such a situation? They will trade them outside the EU, where the authority of the latter, including MiCA, does not reach.


In essence, this is nothing new. Ideas of using offshore bank accounts, beyond the reach of tax officials, to store financial assets are commonly and effectively employed. In the case of cryptocurrencies, it will be even easier and promise the possibility of remotely utilizing services from overseas cryptographic firms without leaving home.


And this is precisely what displeases the EU authorities. After all, they did not push for stringent control regulations for citizens to now ignore them and act on their own terms. On Monday, the European Securities and Markets Authority (ESMA) published a proposal for relevant legal solutions.



Unable to outright ban it (likely due to political reasons), the Authority wants to take steps to significantly hinder Europeans from using overseas crypto markets. According to the proposal, they will have to actively seek out offers and contact entities offering them from outside the Union.


These entities will be prohibited from providing cryptographic services to EU residents unless the latter approach them on this matter. ESMA officials describe this as "reverse solicitation" and do not hide that it is intended to worsen the position of entities outside the Union compared to those operating within its borders.


They hope to force offshore companies to register in the EU – which, of course, involves the entire legal regime of MiCA, the necessity of reporting to EU tax authorities about their clients, and the rest of this burden.



In line with EU tradition, this act – clearly complicating the lives of citizens in the name of pushing increased control over them – is justified by concern for them. Specifically, it is framed as protecting against unfair competition, which, if left unchecked, will undoubtedly harm poor users... yes, undoubtedly.


Besides its goals, it also mentions the protection of the interests of entities subject to MiCA regulations. It is certainly candid for an officially impartial regulator to openly admit to arbitrarily bending market rules in favor of those it favors.


It is undeniable that MiCA poses a significant burden for EU cryptographic firms.


However, the solution proposed by ESMA officials is not to restore their competitiveness but rather to deprive them of access to the market compared to their competitive rivals from beyond the seas.



Naturally, the question arises: will these actions prove effective? Much more aggressive regimes (think Russia or China) have tried to control the cryptocurrency market – and each time, these attempts ended in failure. Particularly humiliating for representatives of authoritarian authorities, the more convinced they were of their omnipotence.


ESMA officials seem to be aware of this. It's hard to interpret the fact that a second proposal was immediately published with these proposals (which would be unnecessary if the first one achieved the intended effect).


In this latter proposal, EU authorities want to officially classify all cryptocurrencies as "financial instruments." And subject them, as well as their buyers and sellers, to the same regulatory burdens as investors in stocks and bonds.


It remains to be seen whether all this will make the citizens of Europe obediently submit to the control dreamed of by the authorities. Or, conversely, will offshore crypto exchanges and funds anticipate an increase in interest from the residents of the Old Continent?


30.01.2024



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