Cryptocurrency investors in Europe are currently not protected by European Union cryptocurrency asset market rules, and it will take some time before these protections are implemented. The European Securities and Markets Authority (ESMA), Europe’s securities regulator, recently issued a statement regarding the transition to the Markets in Crypto-Assets Regulation (MiCA), which aims to regulate crypto assets in Europe.
According to the ESMA, the investor protections provided by MiCA will not come into effect until at least December 2024. This means that investors must be prepared for the possibility of losing all the money they plan to invest in cryptocurrencies. During this period, holders of crypto-assets and clients of crypto-asset service providers will not benefit from any EU-level regulatory and supervisory safeguards. They will not be able to file formal complaints against crypto-asset service providers with their National Competent Authorities (NCAs).
Even after December 2024, there is no guarantee that investors will be fully protected by MiCA until 2026. Member states have the option of granting crypto service providers an additional 18-month “transitional period,” also known as a “grandfathering clause,” allowing them to operate without a license. This means that holders of crypto-assets and clients of crypto-asset service providers may not benefit from full rights and protections under MiCA until as late as July 1, 2026. The powers of most NCAs to supervise those who benefit from the transitional period are limited, depending on local laws.
The ESMA emphasizes that even after MiCA is implemented, there is no such thing as a “safe” crypto asset. Many crypto-assets are highly speculative and carry various risks. MiCA does not address all of these risks, and investors need to be aware of the inherent volatility and uncertainty associated with cryptocurrencies.
These warnings from the ESMA come shortly after the regulator released a second consultative paper on MiCA on October 5. The ESMA and other related authorities are currently in the implementation phase of MiCA and are responsible for consulting with the public on a range of technical standards. These standards are expected to be published in three packages.
The introduction of MiCA in 2020 aims to regulate crypto assets in Europe by amending existing laws, specifically Directive 2019/1937. The groundwork for MiCA began in 2018 due to the increasing public interest in investing in cryptocurrencies.
Overall, it is crucial for investors in Europe to understand the current lack of protections and the gradual implementation of MiCA. They should be cautious and informed about the risks associated with investing in cryptocurrencies, even after MiCA is fully implemented. Consulting with financial professionals and staying updated on regulatory developments can help investors make informed decisions in this volatile market.