Mica Law may lead to an increase in cryptocurrency transactions in euros

ESMA estimates that the Mica Law may become a “booster” for euro cryptocurrency transactions.

In one of its latest reports, the European Securities and Markets Authority (ESMA), the European Union’s securities regulator, has noted that the Mica Law has not yet driven any increase in cryptocurrency transactions.

According to the regulator, the announcement of the MiCA regulation has not generated an increase in euro volumes in the current context. Nevertheless, the institution points out that it could still drive growth once implemented this year, as it aims to improve investor protection.

In this scenario, it has highlighted that the euro only plays a minor role, around 10% of transactions. In their view, the distribution of pegged fiat currencies reflects a heavy reliance on the U.S. dollar along with the South Korean won as a market entry and exit ramp.

Similarly, the institutional report indicated that fiat to crypto trading volumes around the world declined from 30% in 2021 to 20% in 2023 because of the crypto winter. While the market has recovered since that time, they claim that this reversal is due to the increased popularity of stablecoins.

Moreover, the ESMA report noted that trading volumes are highly concentrated in a few exchanges, with only ten companies handling 90% of the transactions, and the largest of these “accounts for almost all of the volumes traded on the global market”. “In addition, we note that market liquidity can vary widely and tends to be higher on the larger exchanges,” they add.

Similarly, the EU regulator stresses that determining the place of origin of order flow or the territorial location of crypto exchanges remains “problematic.” “We note that around 55% of trading volume is executed on crypto-exchanges holding an EU license as a virtual asset service provider (VASP). However, most of these transactions are likely to occur outside the EU,” they mention.

Before MiCA, ESMA advocated that firms should be more transparent with investors about the risks and the regulatory vacuum. Currently, many companies are not disclosing enough, ESMA believes. It also expressed dismay at investment firms offering unregulated products and services, including cryptocurrencies.

Spain is the only country that has proactively embraced MiCA, with its three major banks—Banco Santander, BBVA, and CaixaBank—recently declaring their intentions to enter the cryptocurrency market.