The crypto wild west: Will the EU’s new rules change things?

The precipitous fall in Bitcoin and by extension the crypto markets isn’t new and is a case of history repeating itself. If anything, the recent fall in cryptocurrency valuation is perhaps a reminder to bring in large scale regulations for the Wild West cryptocurrency markets.

Source: Cointelegraph

While India has recently established a regulatory framework for the until recently unregulated cryptocurrency markets, the EU legislation towards cryptocurrencies may set a new precedent.  In the Indian context, data from CoinGecko reveals that three exchanges — ZebPay, WazirX, and CoinDCX — experienced drops in the value of daily trade of between 60 and 87 percent right after the 1 percent tax deductible at source went into force on July 1, 2022. However, India’s cryptocurrency regulations maybe perceived as being too harsh. In contrast, would the EU’s new crypto market rules find a middle ground between decentralization and protecting investor interests?

The proposed new EU Crypto rules

Crypto-asset service providers will be subject to tight restrictions protecting customers’ wallets and held accountable if they lose a client’s crypto assets. Before the new law can take effect, it must be formally approved by the European Parliament and EU member states. More here. It gives bitcoin asset issuers and providers of related services a “passport” that enables them to serve clients throughout the EU from a single location.

Holders of stablecoins will always be given a claim from the issuer free of charge. The EU banking authority is in charge of overseeing all stablecoins.

Starting from the collapse of the terraUSD stablecoin and the freezing  of transfers and withdrawals by key US crypto lender Celsius Network, Crypto markets have fallen significantly; Bitcoin, the most prominent cryptocurrency has seen a decline in valuation by nearly 70 percent. Presently, it is barely holding at the USD 20,000 mark, which is a far cry from its November record of $69,000.

Once the landmark regulation is passed, it would serve to consolidate the EU’s role as a standard-setter for digital issues.  With the new regulations, crypto-asset service providers will be held accountable for investor losses,  and have to adhere to strict measures to protect users’ wallets. In the long run, the EU’s rules could set a precedent and help restore investor confidence in the crypto markets.

How is the market likely to respond?

The crypto industry needs to look at the broader picture and problems posed by the current lack of uniform regulations. There is a dire need for key stakeholders in the industry to find a way to work with legislators to create transparency and instill regulatory clarity.

There is criticism by crypto investors that the new rules would mean that stablecoins would have no ways to be profitable.  However, the overall reception by crypto investors has been positive as per news reports.

For instance, Coinbase Global Inc., a significant international cryptocurrency exchange, wrote in a blog post that the comprehensive new proposed EU regulatory framework was “exciting,” and could give the market regulatory certainty while boosting industry standards. The blog further highlights that Coinbase would be able to invest in, speed up, and expand our growth initiatives across the entire EU once the unified single set of rules for the entire region are implemented

The guidelines, according to AFME, a trade group for the financial markets, will lessen fragmentation and support the growth of a strong and effective market.

However, more clarification is required to guarantee that holders of crypto assets are only held accountable in instances of negligence or wrongdoing and not for circumstances beyond their control such as a nation or state hack.