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As Bitcoin (BTC) broke the $100,000 barrier in 2024, the stage is set for 2025 to be a pivotal year for crypto legitimization. However, achieving regulatory clarity for decentralized, cross-border cryptocurrencies comes with challenges:
- Cross-Border Nature
Cryptocurrencies operate globally, transcending national borders. Determining which country's laws apply to a transaction or protocol is difficult, especially when participants are in different jurisdictions. Entities and users can resort to regulatory arbitrage by moving operations or activities to jurisdictions with lenient or unclear regulations, undermining the effectiveness of stricter regulatory regimes.
- Decentralized Entities
Regulators are accustomed to dealing with centralized entities (e.g., banks, stock exchanges) that can be held accountable. Cryptocurrencies like Bitcoin and Ethereum operate on distributed networks without relying on centralized intermediaries. This makes it difficult to identify who is responsible for compliance or enforcement. Without a clear entity to regulate, enforcing laws becomes challenging, leading to fragmented approaches (e.g., targeting exchanges or wallet providers instead of the protocol itself).
- Pseudonymous Privacy
Many cryptocurrencies allow users to transact pseudonymously or even fully anonymously (e.g., privacy coins like Monero or Zcash). Pseudonymity and anonymity makes it difficult to enforce anti-money laundering (AML) and counter-terrorism financing (CFT) rules, as identifying and tracking illicit actors becomes more complex. Striking a balance between user privacy and regulatory oversight remains a contentious issue.
The overcoming of these crypto regulatory challenges requires a supra-national approach. As the first supra-national crypto regulation, the European Union (EU)’s Markets in Crypto-Assets Regulation (MiCA) is paving the way for crypto legitimization through regulation.
What is MiCA?
Under MiCA, crypto asset service providers (CASPs) are required to be registered and licensed as an E-Money Institution (EMI) or Credit Institution (CI). The EU’s passporting system allows EMI and CI licensees to operate across all 27 EU countries.1 The compliance obligations of EMI and CI licensed holders include:
- Publishing White Paper with DTI
Publishing a white paper with digital token identifiers (DTIs) i.e. barcodes or digital passports that enable the tracking of the tokens issued.
- Maintaining Liquid Assets Backing
Ensuring that tokens issued are fully-backed by reserves with an equivalent value of liquid assets held with a regulated third-party custodian located within the EU.
- Reporting on Reserve Assets
Submission of regular reports to the European Securities and Markets Authority (ESMA) and/or European Banking Authority (EBA) detailing the total value and composition of the liquid assets in their reserves.
MiCA is complemented by the Financial Action Task Force (FATF)’s Travel Rule Guidance, Digital Operational Resilience Act (DORA) and the Artificial Intelligence Act (AI Act) which collectively form the EU’s crypto regulatory framework.
Impact of MiCA on Crypto Industry
MiCA has been much touted as a stringent yet well-defined framework for achieving regulatory approval, especially during periods marked by regulatory uncertainty but just as there are two sides to the coin, MiCA has its pros and cons in terms of industry impact.
- Impact of MiCA on Growth and Development Prospects of Crypto Market
For smaller companies such as startups, the cost and complexity of obtaining a CASP license and adhering to MiCA's standards might pose significant entry barriers, restricting the growth of the crypto market. On the other hand, MiCA establishes clear guidelines to allow crypto businesses to have a legally recognized framework to operate within, leading to regulatory certainty to support the development of the crypto market.
- Impact of MiCA on Risk Exposure of Crypto Businesses
Under MiCA, CASPs who are issuers of electric money tokens (ERTs) must maintain 30% of their liquid reserves in cash across multiple EU bank accounts, with the threshold doubling to 60% for CASPs who are issuers of significant ERTs i.e. those with market capitalization, client base and transaction volume that is higher than the prescribed limits. MiCA’s cash reserve requirements prompted Circle CEO Jeremy Allaire to opine that “MiCA actually introduces a lot of bank risk.”2
- Impact of MiCA on Market Capitalization of Stablecoin Issuers
Tether’s non-compliance with MiCA resulted in the market capitalization of its USDT stablecoin dropping by about $1.3 billion on 31 December 2024 i.e. the day after MiCA came into full force.
In contrast, the market capitalization of USDT’s closest competitor, Circle, which had obtained a license under MiCA for its USDC stablecoin, increased by about $400 million during the corresponding period.
In the battle of stablecoins for market dominance, Coinbase, which is an investor in Circle, landed the first blow on Tether when the leading exchange delisted USDT while other major exchanges are adopting a wait-and-see approach as MiCA’s grand-fathering period runs till 31 July 2026.3
What Other Countries Outside of Europe are Doing for Crypto Regulation?
As of early 2025, the global regulatory landscape for cryptocurrencies is diverse, with countries adopting various approaches from countries with comprehensive legal frameworks (Europe and the U.S.), countries with innovation-driven policies (Singapore and the UAE), countries with partial bans and heavy taxation (Turkey and India), and countries with outright bans (China and Egypt).
What do Regulations Mean for Crypto Projects Moving Forward?
Crypto regulations reduce regulatory uncertainties and boost the legitimacy of cryptocurrencies, paving the way for their institutional use by corporations and governments. For crypto projects, the regulatory-induced legitimization of cryptocurrencies to support their institutional use by corporations and governments is a boon as it opens the door to increased funding opportunities, user base expansion and new partnership opportunities.
- Increased Funding Opportunities
The institutional use and governmental adoption of cryptocurrencies boosts financial liquidity and market confidence in these currencies, driving VC investors to the crypto market to offer increased funding opportunities for crypto projects.
- User Base Expansion
Crypto legitimacy through regulations drives adoption by making cryptocurrencies more appealing to mainstream users and businesses, supporting the expansion of the user base of crypto projects.
- New Partnership Opportunities
Armed with regulatory certainty, crypto projects can operate with greater confidence and link up with their counterparts in other jurisdictions, resulting in newfound cross-border partnership opportunities.
Collectively, these factors contribute to the growth and sustainability of crypto projects by leveraging the development and acceptance of cryptocurrencies in the global economy.
Conclusion
The implementation of MiCA represents a milestone in crypto regulation, providing clarity and legitimacy to the industry while highlighting challenges such as compliance costs and centralization risks. With Europe having laid down the foundations with its pioneering supra-national framework, the global crypto landscape in 2025 will depend on how regulators, innovators, and businesses collaborate to balance innovation, consumer protection, and market growth.
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The information provided in this article is for general informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure the accuracy and completeness of the content at the time of writing, laws and regulations are subject to change and may vary depending on jurisdiction. Readers are encouraged to consult with qualified legal professionals in their respective jurisdictions for advice on the the application of laws and regulations to their situation. Web3Auth (incorporated as Torus Labs Pte Ltd) expressly disclaims any liability for any loss or damages, howsoever arising, from any reliance, whether due or undue, on the information provided in this article.
Sources:
(1) ESMA, "Markets in Crypto-Assets Regulation (MiCA)" - https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
(2) DLNews, “Circle CEO says EU’s MiCA crypto law ‘introduces a lot of bank risk’” - https://www.dlnews.com/articles/regulation/circle-ceo-says-eu-mica-crypto-law-introduces-bank-risk/
(3) Decrypt, "Coinbase Europe Delists USDT, Other Stablecoins Citing EU Compliance" - https://decrypt.co/296453/coinbase-europe-delists-usdt
