Markets in Crypto Assets (MiCA)

GS Paper 3

Syllabus: Indian economy and related issues

Source: TH

 Context: The European Parliament has approved the world’s first set of comprehensive rules – MiCA – to bring largely unregulated cryptocurrency markets under the ambit of government authorities.

The Markets in Crypto Assets (MiCA) legislation:

Need:

• 22% of the global crypto industry was concentrated in Europe, which received $1.3 trillion worth of crypto assets.
• 2022 saw bankruptcies and fraud scandals in the crypto industry (collapse of the crypto exchange FTX, etc).

The new rules:

• MiCA will impose compliance on the issuers of crypto assets (legal person who offers to the public any type of crypto-assets).
• It will apply to crypto-asset service providers (CASPs) providing services like the custody, administration, and exchange of crypto assets.
  • A CASP can get authorised in any one member country and will be allowed to conduct their services across the 27 countries.
• It requires crypto companies to send information about senders and recipients of crypto assets to their local anti-money laundering authority.

What kind of assets will MiCA cover?

• It will apply to ‘crypto assets’, including not only traditional cryptocurrencies like Bitcoin and Ethereum but also to newer ones like stablecoins.
  • Stablecoins are digital tokens that aim to stay pegged in value with a more stable asset like the U.S. dollar or other stable cryptocurrencies.
• The MiCA’s scope will exclude central bank digital currencies, non-fungible tokens (NFTs) and other crypto assets already under existing regulation.

Significance:

• A comprehensive framework for 27 countries in Europe not only harmonises the crypto industry but also gives the EU a competitive edge in its growth.
• It will protect consumers against deception and fraud.
• Information sharing provisions will prevent laundering and terror financing activities.

What has been the reaction?

• The new rules will come into force after formal approval by (27) member states.
• A broader view is that it is better to have a regulatory framework than to have no rules at all.
• However, the rule is already behind in terms of addressing more recent weaknesses (as it is under development for 3 years) in the cryptocurrency market.
  • For instance, it does not cover practices like crypto staking and lending.

How is crypto regulated in India?

• India is yet to have a comprehensive regulatory framework for crypto assets and the legality of cryptocurrencies in the country is still a grey area.
• However, the Indian government has taken certain steps to bring cryptocurrencies under the ambit of specific authorities and taxation. For example,
  • In the Union Budget 2022, the Finance Ministry imposed a 30% tax on income from the “transfer of any virtual digital asset.”
  • The government placed all transactions involving virtual digital assets under the purview of the Prevention of Money Laundering Act (PMLA).
• India is now calling for consensus in the G20 grouping, to have a globally coordinated policy response on crypto assets.

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