EU's landmark crypto legislation introduces consumer-safety measures.
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, the EU Council officials should approve it by the end of the month, going into effect in 2024. As the news hit the market, Bitcoin (BTC) dropped to a two-week low of under $19,000.
What is in the TFR Legislation?
Aligning with traditional finance, the Transfer of Funds Regulation (TFR) requires that all digital asset transactions are made traceable, specifically if they go through third-party platforms, which can 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 must source transactions from both sides of the transfer.
Yet, this TFR rule doesn’t apply to non-custodial wallets (un-hosted) for P2P transactions. Nonetheless, even crypto ATMs fall under the CASP obligation purview. When transactions are done between CASPs, they must store all information in a GDPR-compliant manner.
However, the wallet owner is not required to verify ownership if a transaction is valued under $971.72 from a CASP to a non-custodial wallet.
What is in the MiCA Legislation?
The Markets in Crypto Assets Regulation (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 if crypto projects’ white papers are sufficient for them to launch ICOs.
Moreover, ESMA will monitor CASPs if they have over 15 million customers. Likewise, stablecoin issuers must register and prove they have sufficient capital for stablecoin redemption. Their supply will be restricted if they are not issued in euros or other EU-member currency.
When it comes to other CASPs, such as cryptocurrency mining companies, they would have to disclose energy consumption prominently displayed on their websites.
Under MiCA, new crypto/web3 ventures will have to craft white papers with included measures against price manipulation, consensus algorithm manipulation, price distortions from pseudonymous whales, hack attempts, and other consumer-safety precautions.
At a time when the SEC probes NFTs as securities, neither NFTs nor DeFi is covered by MiCA. However, regulation of this space is deferred to the ESMA. 18 months from enactment, the European Commission is scheduled to produce a report on these markets in coordination with ESMA and EBA (European Banking Authority).
Bitcoin Price Briefly Goes Under $19k Support.
During this year’s bear market, Bitcoin’s price bottom has been a hotly contested topic. In June, Bitcoin endured its first test, having reversed after going down to ~$17,600. Nonetheless, Bitcoin’s downtrend line is yet to break, dropping under the week’s critical $19k support level on Tuesday.
However, some traders have noted Bitcoin’s downtrend is similar to the 2019 period, with the use of Donchian Channels. This technical indicator considers the highest and lowest lows as either bullish or bearish extremes, which could then be used to identify potential reversals.
It is then a matter of the market perceiving this trend as an accumulation opportunity. This will rely on the Fed’s interest rate expectations in November. Recently, billionaire hedge fund manager Paul Tudor Jones stated that his portfolio is permanently diversified with Bitcoin.
More tellingly, he noted,
“In a time where there’s too much money and fiscal spending, Bitcoin and Ethereum will have value”.
This confirms the long-running thesis among investors that BTC serves as a currency debasement hedge, more so than an anti-inflation hedge. And it is up to the Fed to paint BTC as such.