Exchanges anticipate disruptions as MiCA targets Tether’s USDT, which could result in liquidity fragmentation across EU markets.
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Bloomberg News reported on Dec. 20 that the EU’s impending crypto regulations are causing concern regarding potential market liquidity disruptions as exchanges prepare to comply with new requirements under the Markets in Cryptoassets (MiCA) framework.
The delisting of Tether’s USDT, the world’s most widely used stablecoin, from EU-regulated platforms is required by the regulations, which are scheduled to take full effect on Dec. 30.
MiCA’s objective is to enhance transparency and discourage illicit financial activity by mandating that stablecoin issuers obtain e-money licenses, maintain substantial reserves, and supervise payment-related transactions.
Nevertheless, Tether Limited has not yet been able to acquire such a license, which has resulted in its removal from crypto exchanges that operate within the European Union.
USDT has become a fundamental component of global liquidity due to its dominant position in crypto trading pairs. It is anticipated that the stablecoin’s absence from the EU market will disrupt trading activity and increase costs for investors who depend on it to efficiently transfer funds.
Pascal St-Jean, the CEO of 3iQ Corp, stated that: “USDT is the reference price for a significant number of crypto assets. To compel investors to transition to alternative stablecoins or fiat currencies introduces inefficiencies and increases transaction costs.”
Exchanges like OKX, which delisted USDT in Europe earlier this year, have reported a trend among users to favor fiat trading pairs. Market participants are still apprehensive about the potential fragmentation of trading activity and the reduced liquidity, despite this adaptation.
President-elect Donald Trump’s pro-crypto policies have energized the market, and the EU’s stringent regulatory posture coincides with an era of increasing optimism in the United States.
Critics contend that there is a risk of MiCA driving traders and liquidity providers to less restrictive jurisdictions, despite its intended purpose of improving transparency and reducing illicit activity. In the global crypto market, analysts caution that Europe’s efforts to restrict regulations may erode its competitiveness.
The European Central Bank recently reported that the ownership of crypto assets in the eurozone has doubled since 2022, with 9% of the population now owned digital assets, despite the challenges.
Venture capital investment in European crypto businesses has, however, experienced a decline, reaching its lowest point in four years. This trend underscores more general apprehensions regarding the region’s capacity to attract investment and innovation in the face of more stringent regulatory frameworks.
The bloc’s capacity to remain competitive in the swiftly evolving digital asset ecosystem may be put to the test by the immediate impact of the regulations on liquidity and investor confidence, despite their stated objective of strengthening market stability and transparency.
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