What is Markets in Crypto-Assets (MiCA)?

Key takeaways

• MiCA is the EU’s regulatory framework designed to standardize and regulate the crypto market, focusing on investor protection, financial stability and innovation.
• MiCA was introduced to address regulatory inconsistency, rising fraud and potential risks to financial stability, aiming to create a level playing field and safeguard consumers.
• MiCA consists of seven titles, covering platform and issuer requirements, market abuse prevention and cross-border cooperation among EU regulators, with specific rules for different types of crypto assets.
• MiCA excludes certain assets like financial instruments under other EU laws, non-fractionalized NFTs, CBDCs and nontransferable assets, like loyalty points, allowing flexibility for innovation.

MiCA represents a brand new regulatory framework for cryptocurrencies in Europe. It helps bring order to a market that’s been pretty much the Wild West — protecting investors, preventing fraud and making sure things run more smoothly. 

The acronym is short for “Markets in Crypto-Assets,” and its journey began back in 2018. Indeed, with the cryptocurrency market growing rapidly throughout the late 2010s, the European Commission saw the need for a unified approach to address emerging challenges. 

This led to the formal proposal of MiCA on Sept. 24, 2020, as part of a broader push to enhance digital finance and protect consumers.

Why is MiCA required?

Three main factors drove the need for MiCA:

• Regulatory consistency: Before MiCA, the absence of a clear regulatory framework led to confusion and inconsistency across EU member states. Businesses struggled with compliance, and consumers faced varying levels of protection. MiCA aims to create a level playing field, making cross-border business easier while boosting consumer safeguards.
• Investor protection: With crypto’s popularity came a rise in fraud and scams. MiCA introduces tough transparency rules, requiring crypto issuers to disclose risks clearly, ensuring consumers are better informed before investing.
• Financial stability: The unregulated crypto market posed a risk to the stability of the financial system. MiCA tackles this by setting rules to prevent market manipulation and promoting responsible innovation in the sector.

Timeline of MiCA regulation

MiCA, the European Union’s regulatory framework for crypto-assets, was proposed in September 2020, adopted in May 2023, and will be fully enforceable by December 2024, setting comprehensive regulations for crypto-asset service providers across the EU.

Did you know? Although MiCA is a regulation that applies directly across EU member states, it requires individual countries to establish national laws for its implementation and enforcement. This is one of the reasons why it has taken so long to come into effect.

MiCA titles at a glance

MiCA comprises seven main titles that cover everything from crypto asset regulation and provider requirements to jurisdictional responsibilities.

MiCA Title I

Title I sets the rules for platforms that offer and trade publicly available crypto assets. It outlines the requirements these platforms must meet to operate legally within the EU and covers three points:  

• Setting the requirements for these platforms and the entities involved
• Explaining exactly who the regulation applies to 
• Providing definitions for key terms like distributed ledger technology, utility tokens, consensus mechanisms, crypto-asset services and many others.

For example, when talking about “utility tokens,” the regulation defines them as digital assets that provide users with access to a specific application or service, like tokens used for in-game purchases or access to certain features on a platform.

MiCA Title II 

Title II of MiCA lays out the requirements for entities looking to create and publicly offer a crypto asset. If an entity wants to issue a crypto asset that isn’t an asset-referenced token or e-money token, it must meet several key criteria: 

• Legal entity status: The entity needs to be a legal person, meaning it must be established under the laws of an EU member state and able to carry out legal activities.
• White paper: A detailed white paper must be prepared and published. This document should explain the purpose, technology and risks of the crypto asset.
• Marketing communications: The entity must publish marketing materials that accurately represent the crypto asset and how it’s intended to be used.
• Notification to authorities: The entity must notify the relevant authorities in its member state about the planned offering, submitting the white paper (mandatory) and marketing communications (if required).
• Additional compliance: The entity must follow any other specific requirements for offering crypto assets. 

It’s worth noting that these rules don’t apply to tokens rewarded for work on a blockchain as long as they’re offered for free. Also, utility tokens, or tokens meant only for payment, are not considered crypto assets under MiCA.

MiCA Title III 

Title III of MiCA focuses on asset-referenced tokens (ARTs), a type of crypto asset designed to maintain stable value by being tied to another asset or right or a combination of both. These are distinct from e-money tokens and aim to stabilize their value using collateral, which can include fiat currencies, commodities or even other crypto assets. In everyday terms, ARTs are what we commonly think of as stablecoins.

For instance, imagine a hypothetical ART called EcoCoin, whose design is to keep its value stable by being backed by a mix of assets: 50% euros, 30% gold and 20% Bitcoin (BTC). By diversifying across different assets, EcoCoin can better weather market swings that might affect any single asset. 

To issue an ART like EcoCoin, the entity must be a legally recognized institution, often operating as a credit institution, and must meet strict regulatory standards. This includes maintaining adequate reserves to back the tokens issued and ensuring that the ART is managed in a transparent, stable manner.  

The regulation also requires issuers to provide clear information about the assets backing the token and the methods used to maintain its stability.

MiCA Title IV 

Title IV of MiCA sets the rules for issuing e-money tokens (EMTs), which are crypto assets pegged to official currencies like the euro or the dollar. These tokens aim to maintain a stable value, making them similar to digital versions of traditional money.

To issue an EMT, entities must be authorized as either credit institutions or electronic money institutions. For example, let’s say a company called PayToken plans to launch an e-money token pegged to the euro. Before PayToken can offer its EMT to the public, it must get the necessary approval from regulatory authorities, which involves submitting a detailed white paper that explains the token’s features, issuance process and how it can be redeemed.

In addition to the white paper, Title IV requires issuers to notify the relevant authorities at least 40 working days before making any public offerings. The white paper must clearly outline how the EMT works, including how it can be issued and redeemed, ensuring transparency for investors. 

Another key aspect of Title IV is the liability for issuers. If PayToken misleads investors or doesn’t follow regulatory guidelines, it could be held responsible for any losses that occur.

Title IV also covers trading platforms. It prohibits trading e-money tokens that have built-in anonymization features unless all traders and transactions can be identified. This doesn’t mean privacy tokens are banned, but it ensures that anonymous transactions can’t happen on regulated exchanges, which helps prevent money laundering.

Here’s a summary to understand the key differences between ARTs vs. EMTs:

MiCA Title V

Title V of MiCA outlines what entities are authorized to provide crypto asset services in the EU and clarifies the scope of their operations. It covers several types of institutions that can offer crypto-related services: 

• Credit institutions
• Central securities depositories
• Investment firms
• Market operators
• Electronic money institutions
• UCITS management companies 
• Alternative investment fund managers.

To operate legally in the EU, businesses must comply with various regulations and be authorized in their respective member states. In this context, a “legal person” refers to any entity recognized by law as having rights and responsibilities, like the ability to enter contracts or own property.

Title V also simplifies cross-border service provision within the EU. For instance, if CryptoTrade is licensed in France, it can offer services in other EU countries, such as Germany or Italy, as long as it notifies the relevant authorities there.

This title also includes important rules for service providers, requiring them to meet specific obligations toward their clients. These include ensuring strong security measures, having solid governance structures and meeting operational standards — all aimed at protecting consumers and promoting transparency within the crypto market.

MiCA Title VI

Title VI of MiCA focuses on tackling market abuse in the crypto asset space. It’s all about promoting fair trading by preventing practices like insider trading and market manipulation, drawing on rules from traditional finance. Specifically, it covers:  

• Insider trading: People can’t trade crypto assets based on confidential, non-public information. For example, if someone working at a crypto exchange hears about an upcoming announcement that will likely drive a token’s price up, they can’t trade on that inside info.
• Unlawful disclosure: It’s illegal to leak inside information before it’s publicly available, especially if it could affect the price of a crypto asset. Anyone caught sharing sensitive information could be held accountable.
• Market manipulation: Any action that gives false signals about a crypto asset’s price or supply is banned. This includes practices like wash trading, where someone buys and sells the same asset to make it look like there’s more trading activity than there really is. 

Importantly, these rules apply to both centralized exchanges and decentralized finance (DeFi) platforms, ensuring that market abuse is tackled across the entire crypto ecosystem.

MiCA Title VII

Title VII of MiCA focuses on how EU regulators should work together to manage the crypto asset market. It establishes a system where national authorities in each EU country cooperate with EU-wide bodies to ensure proper oversight and enforcement.  

Here’s what it covers:  

• National competent authorities (NCAs): Each EU member state must designate an authority responsible for enforcing MiCA rules. These authorities make sure that crypto asset businesses follow the regulations in their country.
• Cross-border cooperation: If a country uncovers issues, such as market manipulation, it must share this info with EU regulators such as the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA). This helps ensure a united, cross-border response.
• Enforcement powers: Regulatory bodies are given clear powers to investigate and impose penalties. For example, if a crypto exchange operates without the proper licenses, the authority can suspend its services or fine the company.
• Regular information sharing: National authorities must frequently exchange information, which is crucial for tackling global crypto risks. This keeps regulators aligned and helps catch issues such as fraud or manipulation quickly.
• Standardized procedures: To make collaboration smoother, Title VII sets out standard processes for sharing information. This ensures that communication between regulators is efficient and transparent.

Did you know? There are two additional titles, VIII and IX, but these relate to the Commission’s role in monitoring and reporting on the regulation’s impact. For example, the Commission has to submit an interim report by June 30, 2025, and a final one by June 30, 2027, to the European Parliament and the Council.

MiCA exclusions: What’s not covered

A key feature of the MiCA regulation is the clear identification of assets that aren’t subject to its rules. This helps separate what MiCA covers from what it doesn’t, ensuring that only certain types of crypto assets fall under its regulatory framework. Here are the main exclusions: 

• Financial instruments: If a crypto asset qualifies as a financial instrument under other EU laws, it’s not covered by MiCA.
• Deposits and structured deposits: Any asset that meets the definition of a deposit or structured deposit is excluded from MiCA’s scope.
• Funds: MiCA doesn’t apply to assets that are classified as funds.
• Securitization positions: Tokens falling under securitization positions are exempt from MiCA.
• Insurance policies: Life and non-life insurance policies, even if tokenized, aren’t treated as crypto assets under MiCA.
• Pension products and social security schemes: These types of financial products are also outside MiCA’s reach.
• Non-fractionalized NFTs: Unique, non-fractionalized NFTs (like digital art tokens with no utility or trading capability) are excluded.
• Public Transactions: Certain public sector transactions are exempt from MiCA regulation.
• Central bank digital currencies (CBDCs): Digital currencies issued by central banks aren’t regulated by MiCA.
• Non-transferable digital assets: Assets that can’t be transferred, such as specific loyalty points, are excluded.

For instance, if a company creates a non-fungible token (NFT) for a unique piece of digital art, this token wouldn’t fall under MiCA, as long as it’s not fractionalized or providing utility like a payment method.  

Did you know? Key figures involved in drafting the Markets in Crypto-Assets (MiCA) regulation include Joachim Schwerin, a principal economist at the European Commission; Elisabeth Svantesson, the Swedish Minister of Finance; Ernest Urtasun, a member of the European Parliament; Robert Kopitsch, secretary general of Blockchain for Europe; and Justine Scerri Herrera, a partner at MK Fintech Partners.

The road ahead

By 2025, MiCA’s provisions will be fully implemented, but that’s not the end — it’s just the beginning. As the regulation sets a foundation, countries like the United States, United Kingdom, Singapore, Canada, Japan and the United Arab Emirates may use it as a model to create clearer rules on crypto assets, market integrity and consumer protection. 

MiCA’s impact will likely lead to greater alignment between regions, improving transparency and investor safety worldwide.

Written by Bradley Peak