The world of crypto-assets has captured the imagination of many: numerous individuals, often by chance, have made significant profits from buying and selling cryptocurrencies.
At the same time, less scrupulous individuals and organizations have also found their way to crypto trading platforms, which offer greater anonymity and less traceability.
Crypto-assets as an Efficient Alternative to Traditional Financial Institutions
The complexity and inefficiency of traditional financial institutions, particularly in international transactions (sometimes hindered by compliance and reporting obligations that have become nearly impossible), have led many businesses to opt for alternative payment and trading methods.
Financing new business activities or investment purchases has become increasingly difficult through traditional banks, which are overwhelmed by restrictive regulations, financial targets, liability rules, and a general atmosphere of panic and protectionism among their employees. In these sectors, crypto-assets have become an indispensable alternative, often for good reasons, due to the lack of other options.
A Nearly Absent Regulatory Framework and the Reasons for It
The almost organic development of the world and market of crypto-assets since 2008 has resulted in a lack of pre-agreed, well-thought-out rules. The inherently virtual and alternative nature of the crypto world has also led to discussions and difficulties among legal and tax experts regarding the qualification of such transactions, the taxability of profits or gains, etc.
This has led to a hodgepodge of legal rules and observations, with countries still competing to attract as many crypto-assets as possible to support their struggling public finances. Some countries have even issued their own sovereign cryptocurrencies, sometimes to regain a declining leadership position in financial markets (e.g., Switzerland) or to clearly oppose the leading role of the dollar and the United States (e.g., China).
The European Union and its Member States have long remained on the sidelines, merely observing the international scene, with a wide variety of legal and tax treatments of crypto-assets depending on the Member State in question.
It seems unlikely that this situation will change substantially anytime soon, partly due to the fiscal autonomy of the Member States, which is characteristic of the Union.
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The MiCA Regulation
In the area of financial market law, the situation is more nuanced, and the Union has taken action, most recently by adopting Regulation (EU) 2023/1114 on crypto-asset markets (MiCA: Markets in Crypto-assets), entering into force between June and December, 2024. Unsurprisingly, a protectionist concern for its own financial institutions and traditional financial markets underpins such a comprehensive regulatory framework, which was also established relatively quickly by EU standards. Officially, the Regulation aims to protect investors and promote financial stability.
The Union clearly understands that it will be almost impossible to control the world of crypto-assets, let alone keep it under control. Therefore, it focuses on the platforms through which crypto transactions are conducted and the providers of (new) crypto-assets.
What follows is a (very general and therefore inherently incomplete) summary of what the Regulation specifically targets, highlighting both its strengths and weaknesses.
Scope and Application
MiCA applies to the issuance, public offering, and trading of crypto-assets, as well as related services. The legal text distinguishes between various types of assets, essentially those that stabilize their value by pegging it to traditional fiat currencies (stablecoins) or other assets.
Licensing and Supervision
All issuers of crypto-assets and service providers in the EU must meet a number of minimum qualitative requirements and must apply for a license from the supervisory authorities. These authorities will play a supervisory and sanctioning role. The inspiration for these rules undoubtedly comes from the experience and regulation within traditional financial markets, which also operate under a qualitative and quantitative licensing system.
Protection of Consumers and Investors
The Regulation introduces strict rules to protect investors, including requiring issuers to clearly and transparently explain their issuance project in a so-called “white paper,” which outlines what the investor is committing to, their rights, and how the raised funds will be held and used.
A significant problem in the current offering of new cryptocurrencies is indeed the poor quality of the issuance project or the outright fraudulent nature of the offering, where investors' money is simply taken without any real underlying economic project or investment objective.
Environmental Impact
The text also takes into account the environmental impact of crypto-assets, requiring entities to provide information about the sustainability of their activities, particularly regarding energy consumption.
This may sound strange to the average reader, but one must indeed not forget that crypto markets exist only electronically and constantly run countless algorithms on an even larger number of servers and networks. It was calculated that (in 2020) the total annual energy consumption of Bitcoin was as high as 6,188 TWh (terawatt-hours), which is more than the annual consumption of countries like Switzerland, Kuwait, or Greece.
Impact and Future Developments
The MiCA regulation is seen as a groundbreaking framework that enables the EU to lead in the global regulation of crypto-assets. By providing clear rules, the EU aims to make the market more attractive to serious investors while curbing the proliferation of unregulated and potentially risky crypto activities.
However, the regulation is also the subject of debate and criticism. Some argue that overly strict regulation could stifle innovation, while others believe that MiCA may not go far enough in addressing all risks, especially given the rapid evolution of technology.
It seems very unlikely that the (slow and often inefficient) legislative bodies of the EU will be able to respond quickly, precisely, and accurately to the ongoing changes and (technical) improvements in crypto technology, which will once again become even more complex and better, precisely because the crypto world (and not without reason) essentially has an aversion to traditional paternalism, government interference, inefficiency, and over-regulation—precisely one of the reasons why crypto originally emerged.
Engaging Crypto Specialists is Essential
Our firm has been actively involved for many years in mapping (and keeping track of) the legal and tax treatment of crypto-assets and their transactions worldwide. This requires continuous updates, study, information exchange, and the consultation and further development of our international network (including through the excellent cooperation within www.xlnc.org).
We actively seek a correct approach for our clients' activities within the current and future state of legislation, doctrine, and practice, with a view to achieving a favourable tax regime today and a responsible fiscal and legal situation in the future. The international dimension is once again indispensable in this exercise. Since 2015, our firm has received at least one award annually as the best firm in Belgium in international taxation.
Therefore, be sure to consult with us before making any decisions about your crypto-assets or activities at home or abroad or before further developing them.
