The new EU crypto regulations, which come into effect at the end of the year, are already reshaping the market for digital tokens, especially stablecoins like Tether’s USDT. Many crypto exchanges in the EU have delisted the dominant stablecoin USDT to comply with MiCA. While the regulations aim to improve oversight and prevent crimes such as money laundering, crypto experts warn that they could reduce market activity if these goals are not fully achieved.
Could MiCA hamper market liquidity?
Cryptocurrency executives warn that MiCA regulations may reduce market liquidity without meeting intended goals, which could make the EU less attractive to digital asset traders at a crucial time.
Usman Ahmad, CEO of Zodia Markets, explained that the removal of USDT, the most liquid stablecoin, limits options for EU clients. While stablecoins like USDT are essential for cryptocurrency traders to transfer funds, move money across borders, and settle traditional assets, concerns have grown over their use in illegal activities, as demonstrated by recent reports about Russian networks that They use USDT for illicit transactions.
However, Tether has condemned these illegal uses and emphasized its commitment to preventing such activities.
MiCA requires stablecoins on CEX to have e-money license
In an effort to strengthen oversight of the asset class, MiCA requires that all stablecoins listed on centralized exchanges be issued by a company with an electronic money license. Issuers must hold up to two-thirds of the reserves backing their tokens in an independent bank and monitor all transactions made for payment purposes.
While Circle received this license, Tether has not yet obtained it, which could lead to its delisting before December 30. Even with MiCA in place, authorities need better tools to track illegal transactions, something that is not yet ready. USDT has been widely used in illegal activities, but Tether is working to address this with a new partnership aimed at combating financial crimes.
Meanwhile, with President-elect Trump’s victory, expectations are rising that the US will adopt a more favorable regulatory approach to cryptocurrencies, leading to a market rally. In contrast, Europe is witnessing a decline in cryptocurrency investments and venture capital in cryptocurrency startups will hit its lowest level in four years, raising concerns that it may be left behind in the cryptocurrency market.
Encouraging signs
However, there are some encouraging signs. Cryptocurrency ownership in the euro zone has more than doubled to 9% since 2022, although the European Central Bank warned that the increase may be influenced by a change in survey methodology.
Despite this growth, the removal of Tether (USDT) from platforms in the EU is expected to significantly reduce liquidity as USDT has the largest number of trading pairs globally. Traders are likely to face disruptions as they move away from USDT towards other stablecoins or fiat pairs. Some exchanges, such as OKX, have already seen traders switch to fiat pairs instead of using other stablecoins.
