The EU must provide regulation and innovation to the crypto asset industry
The Cryptocurrency market is too big to ignore, Europe must set the standards for crypto assets to flourish, writes Stefan Heinrich Berger.
Brussels (Brussels Morning) It was an announcement by Elon Musk — that Tesla had used 1.5 billion dollars of its spare cash to acquire Bitcoins — that made crypto assets a talking point among the masses.
Bitcoin’s market capitalisation currently sits at more than 900 billion dollars and today one Bitcoin equals approximately 40 euros. The Bitcoin investment enthusiasm expresses that digital assets are becoming an increasingly important part of the financial system. The crypto currency market is a maturing industry that has gained legitimacy and attracted millions of new customers.
Crypto has grown out of its niche
Crypto assets are a driver of innovation in the financial world. At the same time, their increasing acceptance reveals the growing skepticism of consumers towards the established financial system and the longing for alternative financial options to the classical system.
Bitcoin is probably the most famous representative of the crypto asset industry. While investor Warren Buffett once famously called it “rat poison“, nowadays Bitcoin seems more like a magic potion that turns anyone who comes into contact with it into an innovator and technological avant-garde.
Its price has been on a roller coaster ride over the last few years classifying it as an asset rather than a currency.
In contrast to Bitcoins, so called “stablecoins” rely on a set of stabilisation tools, which minimise fluctuations. Particularly in the wake of the announced introduction of Facebook’s digital currency “Diem” (formerly Libra), stablecoins have become a subject of political debates.
Positioning Europe at the forefront of crypto innovation
The worldwide crypto market has become too big for countries and central banks to ignore. At the beginning of 2020, over 5,100 crypto assets existed with a total market capitalisation exceeding 250 billion dollars. In February, it reached 1,413 trillion dollars.
Bitcoin dominates the crypto market with a 61% share and it is currently being celebrated across the world. Yet, traditional financial institutions refuse to join the crypto party, even though they are supposed to be the ones hosting it.
The time has come for banks to enter crypto custody and to bring Bitcoin to the bank counter. The credit card company Visa plans to promote the introduction of Bitcoin and crypto currencies in banks via a software solution for its institutional customers. Furthermore, Mastercard announced it would facilitate cryptocurrency transactions this year.
Creating a crypto-friendly environment
For crypto-asset markets to develop within the EU, there is a need for a sound legal framework, clearly defining the regulatory treatment of all crypto-assets that are not covered by existing financial services legislation. By adopting the Digital Finance Package last year, the EU Commission has already taken major steps in accelerating the EU’s Digital Finance transition.
The current parliamentary report on “Markets in Crypto-Assets” (MiCA) constitutes the fundamentals for Europe’s crypto-adaptation. It will boost innovation while preserving financial stability and protecting investors from risks.
We must create a harmonised market, promote legal certainty for crypto-asset issuers and ensure a level playing field for service providers. The objective is furthermore to ensure equal opportunities between established market players and providers of new services. Also, the legislation should also contribute to combating money laundering and the financing of terrorism.
In addition to a regulatory framework, we must be prepared to issue an additional digital euro providing costless access to a simple, universally accepted, risk-free, trusted means of payment to citizens.
A digital euro would complement cash, not replace it. Europe must set standards, instead of following those of others and a digital euro would be the proof of progress and integration in Europe. Meanwhile, monetary authorities are called upon to rebuild trust in the financial system.