The European Parliament voted in favor of pushing through strict regulations on "self-hosted" crypto wallets Thursday. The market has dipped in response.
Key Takeaways
- The European Parliament voted in favor of introducing strict regulations on non-custodial cryptocurrency wallets on Thursday last week.
- Bitcoin, Ethereum, and many other assets dipped following the vote. The global cryptocurrency market cap has declined to $2.1 trillion.
- The European Parliament recently voted on a Proof-of-Work ban, but the crypto industry swerved a blow when committee members voted against the proposal.
Bitcoin and Ethereum both tumbled following the European Parliament’s vote on monitoring non-custodial crypto wallets.
Market Shake Following European Parliament Vote
Following the European Parliament’s Thursday vote on "unhosted" digital wallets, a selloff hit the crypto market.
Bitcoin briefly dipped below $45,000 early Friday and was 4.5% down Saturday. Ethereum shaved off 3.8%, while several other Layer 1 networks, including Cardano, Terra, and Avalanche, were harder hit. The total cryptocurrency market cap dropped around 4.1% to $2.1 trillion.
The shake-off came shortly after the European Parliament voted to impose stringent rules on cryptocurrency users. The European Parliament’s Economic and Monetary Affairs Committee and Civil Liberties, Justice, and Home Affairs Committee voted in favor of a proposal that lays out plans to make crypto service providers gather and submit information on users who interact with "unhosted" cryptocurrency wallets.
In other words, the proposal introduces rules to make services like centralized exchanges track individuals using non-custodial wallets such as MetaMask and hand the data over to regulators. An excerpt from the EU Commission’s proposal reads:
"In the case of a transfer of crypto-assets from or to a crypto-asset wallet not held by a third party, known as an ‘unhosted wallet,’ the crypto-asset service provider or other obliged entity should obtain and retain the required originator and beneficiary information from their customer, whether originator or beneficiary."
Although the proposal initially sought to monitor only transactions above a €1,000 (US$1,311) threshold, it will now apply to all transactions.
The cryptocurrency community widely decried the proposal in the lead-up to the vote, with Coinbase (NASDAQ:COIN) CEO Brian Armstrong describing it as "bad policy" that erodes crypto users’ rights in a Wednesday tweet storm. He added that it was “anti-innovation, anti-privacy, and anti-law enforcement.”
The European Parliament’s wallet vote comes only weeks after the Economic and Monetary Affairs Committee members weighed a Proof-of-Work ban as part of a regulatory framework called Markets in Crypto Assets. On that occasion, the crypto industry narrowly avoided a blow after the committee voted against a ban.
The cryptocurrency industry has faced increased regulatory scrutiny in recent months following a period of mania across the market throughout 2021. Perhaps most notably, President Biden signed the White House’s first Executive Order on handling crypto assets. Unlike the latest EU proposal, the industry welcomed the order as it laid out plans to take a balanced approach toward regulating the space.