The EU’s imminent crypto regulations are raising alarms about potential disruptions to market liquidity as exchanges prepare to comply with new requirements under the Markets in Cryptoassets (MiCA) framework, Bloomberg News reported on Dec. 20.
The rules, set to take full effect on Dec. 30, mandate the delisting of Tether’s USDT, the world’s most widely used stablecoin, from EU-regulated platforms.
MiCA is designed to increase transparency and discourage illicit financial activities by requiring stablecoin issues to obtain e-money licences, keep significant reserves and supervise payment related transactions.
Tether Limited is yet to receive a valid license. This has led it to be removed from the list of crypto exchanges that operate in Europe.
The future of liquidity
The USDT has become a global cornerstone for liquidity due to its dominant position in the crypto trading pair. The stablecoin’s absence in the EU market is expected to disrupt trading activity and increase costs for investors who rely on it to move funds efficiently.
Pascal St-Jean is the CEO of 3iQ Corp.
“A vast proportion of crypto assets trade against Tether’s USDT. Forcing investors to switch to other stablecoins or fiat currencies introduces inefficiencies and raises transaction costs.”
Users of exchanges like OKX who delisted USDT from Europe in the early part of this year have reported that they are now trading fiat pairs. Even with this adaption, participants in the market are concerned over reduced liquidity and potential fragmentation.
The EU’s strict regulatory stance comes at a time of increasing optimism in the US, where President-elect Donald Trump’s pro-crypto policies have energized the market.
MiCA was designed to increase transparency and reduce illicit activities, but critics claim it could push traders and liquidity providers into less restrictive jurisdictions. Analysts have warned that Europe’s tighter controls on crypto could hurt its global competitiveness.
Mixed Signals
The European Central Bank reported recently that despite the difficulties, crypto-asset ownership has doubled in the eurozone between 2022 and now, with 9 percent of the population owning digital assets.
Venture capital investments in European cryptocurrency startups have declined to their lowest levels in the last four years. This trend highlights broader concerns about the region’s ability to attract innovation and investment under stricter regulatory frameworks.
While the regulations aim to ensure greater market stability and transparency, their immediate impact on liquidity and investor confidence could test the bloc’s ability to maintain competitiveness in the rapidly evolving digital asset ecosystem
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