After two years since it was first proposed, the EU’s comprehensive crypto regulation passed a preliminary vote in the European Parliament. Combined with the Markets in Crypto Assets Regulation (MiCA), the Transfer of Funds Regulation (TFR) brings digital assets in line with traditional financial transactions.
Following Monday’s 28-1 vote in favor, it should be approved by EU Council officials by the end of the month and will take effect in 2024. When the news hit the market, Bitcoin (BTC) fell to a low of two weeks under $19,000.
What is in the TFR legislation?
Aligning with traditional finance, the Transfer Funds Regulation (TFR) establishes a requirement that all digital asset transactions be traceable. Specifically, if they go through third-party platforms, which can then block suspicious transfers under the anti-money laundering (AML) framework.
These third parties are called Crypto Asset Service Providers (CASPs), such as exchanges. Previously, the Financial Action Task Force (FATF) named them VASPs, for virtual. If they receive a request from an authority, they are required to obtain transactions from both sides of the transfer.
However, this TFR rule does not apply to non-custodial (non-hosted) wallets for P2P transactions. Nonetheless, even crypto ATMs fall under the purview of the CASP obligation. When transactions take place between CASPs, they are required to store all information in a GDPR compliant manner.
However, if a transaction is worth less than $971.72, from a CASP to a non-custodial wallet, the wallet owner is not required to verify ownership.
What is in the MiCA Legislation?
The Regulation of Markets in Cryptoassets (MiCA) greatly expands the power of the European Securities and Markets Authority (ESMA), which is equivalent to the American SEC. This agency will have the power to regulate whether the white papers of crypto projects are sufficient for them to launch ICOs.
In addition, ESMA will monitor CASPs if they have more than 15 million customers. In addition, stablecoin issuers will need to register and prove that they have sufficient capital for stablecoin swapping. If they are not issued in euros, or another EU member currency, their offer will be restricted.
When it comes to other CASPs, such as cryptocurrency mining companies, they would have to disclose power consumption, which is prominently displayed on their websites.
In practice, under MiCA, crypto/web3 startups will have to draw up white papers with measures included against price gouging, manipulation of consensus algorithms, pseudonymous whale price distortions, hacking attempts, and other security precautions. consumer.
At a time when the SEC is investigating NFTs as securities, neither NFTs nor DeFi are covered by the MiCA. However, the regulation of this space is the responsibility of the ESMA. 18 months after its enactment, the European Commission plans to prepare a report on these markets, in coordination with ESMA and EBA (European Banking Authority).
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Bitcoin Price Briefly Drops Below $19k
During this year’s bear market, the Bitcoin price floor has been a highly controversial topic. In June, Bitcoin withstood its first test, having pulled back after dipping to ~$17,600. Nonetheless, Bitcoin’s downtrend line has yet to be broken as it dipped below the critical $19k support level for the week on Tuesday.
However, some traders have noted that Bitcoin’s downward trend is similar to that of the 2019 period, with the use of Donchian Channels. This technical indicator takes into account higher highs and lower lows as bullish or bearish extremes, which could then be used to identify potential reversals.
It is then that the market perceives this trend as an opportunity for accumulation. In turn, this will depend on expectations of interest rate hikes by the Fed next November. Recently, billionaire hedge fund manager Paul Tudor Jones stated that his portfolio is permanently diversified with Bitcoin.
More revealing, he noted that “In an age where there is too much money and tax spending, Bitcoin and Ethereum will have value.”. This confirms the long-standing thesis among investors that BTC serves as a currency debasement hedge, rather than an anti-inflation hedge. And it is up to the Fed to paint BTC as such.
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About the Author
Tim Fries is the co-founder of The Tokenist. He has a B.Sc. in Mechanical Engineering from the University of Michigan and an MBA from the University of Chicago Booth School of Business. Tim served as a senior associate in the investment team of RW Baird’s US private equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and control solutions.