Crypto regulation in the world: weekly digest #127
EU
The European Union has mandated that cryptocurrency exchanges must delist Tether's USDT by December 30, 2024, unless Tether complies with the Markets in Crypto-Assets (MiCA) regulations. This decision is part of a broader initiative to enhance transparency and oversight in the cryptocurrency market.
Exchanges are required to remove USDT from their platforms by December 30, 2024, if Tether does not meet MiCA compliance standards. The MiCA framework stipulates that stablecoin issuers must hold an electronic money license, maintain substantial reserves, and undergo rigorous audits. Tether has not secured such a license, which directly impacts its ability to operate within the EU.
The delisting of USDT is expected to cause significant disruptions in market liquidity. As one of the most widely used stablecoins globally, its absence could lead to increased transaction costs and inefficiencies for traders relying on it for transactions.
Analysts warn that removing USDT from the EU market could fragment liquidity and reduce investor confidence at a time when the U.S. market is poised for growth under new leadership. However, exchanges may pivot to other stablecoins like USDC or DAI, but these alternatives must also comply with MiCA regulations, which could create further complications if they fail to meet the standards.
This move by the EU may set a global precedent for how stablecoins are regulated, influencing other jurisdictions as they consider similar frameworks. The situation remains dynamic as Tether seeks ways to comply with EU regulations, including potentially launching new stablecoin products that align with these requirements.
El Salvador
El Salvador has recently secured a $1.4 billion loan agreement with the International Monetary Fund, which comes with significant conditions regarding its cryptocurrency policies, particularly concerning Bitcoin and the state-backed Chivo wallet.
The agreement is structured as a 40-month Extended Fund Facility program aimed at bolstering El Salvador's economy and addressing its balance of payments needs. This arrangement is expected to catalyze an additional $3.5 billion in financial support from other international institutions like the World Bank and regional development banks.
As part of the deal, El Salvador has agreed to scale back its pro-cryptocurrency initiatives. The acceptance of Bitcoin by private businesses will become voluntary rather than mandatory, significantly altering the original Bitcoin Law that made it legal tender in 2021.
The state-run Bitcoin wallet, Chivo, which was launched to facilitate Bitcoin transactions among citizens, is set to be discontinued or sold. This decision reflects a broader move to reduce government involvement in cryptocurrency activities while still allowing Bitcoin to remain legal tender.
The IMF's requirements also include measures to improve El Salvador's fiscal balance and lower its debt-to-GDP ratio. The government will need to implement an ambitious fiscal consolidation plan to ensure economic sustainability.
This agreement marks a shift in President Nayib Bukele's approach towards cryptocurrency, moving from an aggressive adoption strategy to a more cautious stance aimed at stabilizing the economy. While Bitcoin will continue to be recognized as legal tender, the government's direct engagement in cryptocurrency through initiatives like Chivo will be curtailed, reflecting the IMF's concerns about financial stability risks associated with widespread crypto adoption.
Hong Kong
Hong Kong is making significant strides in regulating stablecoins with the introduction of its Stablecoins Bill, which aims to establish a comprehensive framework for the issuance and management of fiat-referenced stablecoins.
The Hong Kong government published the Stablecoins Bill on December 6, 2024, with a first reading scheduled in the Legislative Council for December 18, 2024. This bill follows extensive public consultations that began in July 2024, involving stakeholders from the financial sector and three approved stablecoin issuers.
The proposed legislation mandates that any entity wishing to issue fiat-referenced stablecoins must obtain a license from the Hong Kong Monetary Authority (HKMA). This requirement extends to entities marketing these tokens to the public. The HKMA will be empowered to supervise, investigate, and enforce compliance with the new regulations.
The bill stipulates that stablecoin issuers must maintain reserves equivalent to the value of their circulating tokens, composed of liquid, high-quality assets. It also guarantees holders the right to redeem their stablecoins at face value without excessive fees or delays. Furthermore, the framework includes stringent risk management protocols, disclosure requirements, and anti-money laundering measures.
There is broad support for the bill following positive feedback during public consultations. The legislation is seen as a crucial step in solidifying Hong Kong's position as a leading hub for digital assets in Asia-Pacific, aligning its regulatory practices with international standards and especially with the European MiCA law.
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