The European Central Bank (ECB) has expressed concern regarding potential repercussions from assertive US backing for the cryptocurrency sector, cautioning that an increase in dollar-pegged stablecoins could disrupt Europe’s financial stability.
According to a policy document reviewed by Politico, the ECB has requested a reassessment of the Markets in Crypto-Assets Regulation (MiCA) framework for cryptocurrencies shortly after it was implemented.
The worry lies in the potential influx of dollar-backed stablecoins into European markets due to US reforms endorsed by President Donald Trump.
The ECB is anxious that this scenario might initiate a migration of European capital toward US investments, jeopardizing EU financial independence and increasing liquidity challenges for banks.
ECB and European Commission Disagree on MiCA Regulations
While the ECB advocates for stricter regulations, the European Commission has characterized the fears as overstated, according to the report.
The report, referencing two diplomats and one EU representative, remarked that the current MiCA structure is sufficiently sturdy to address stablecoin threats despite prospective US measures such as the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) and the Guiding and Establishing National Innovation for US Stablecoins (GENIUS), two legislative proposals intended to enhance America’s presence in the crypto space.
“The Commission was quite explicit that they held differing perspectives on this matter,” and “not many (countries) were in favor of the notion that we should hurriedly modify (the regulations) based solely on this,” one of the diplomats allegedly informed Politico.
The stablecoin market currently boasts a valuation of $234 billion, as per data from CoinMarketCap.
The ECB warned that European issuers might experience redemption demands from both EU and international stakeholders without more stringent limitations, possibly leading to a financial “run” that would negatively impact vulnerable institutions.
“The concern is justified,” stated Mikko Ohtamaa, co-founder and CEO of Trading Strategy, in a post on X. “Nevertheless, the EU had the initial advantage with the regulation, and they messed it up.”
Ohtamaa asserted that no EU stablecoin is internationally competitive due to MiCA’s stringent regulations, shaped by banking and traditional finance lobbying.
Related: US regulators, FDIC and CFTC, relax crypto limitations for banks, derivatives
Tether remains a prominent opponent of MiCA
Tether, the issuer of the largest stablecoin globally, USDt (USDT), has consistently criticized the EU’s MiCA regulation.
Last year, Tether’s CEO, Paolo Ardoino, contended that MiCA’s stipulations, especially the requirement for stablecoin issuers to maintain at least 60% of reserves in EU bank accounts, could pose systemic risks to both stablecoins and the overall banking framework.
Due to its noncompliance with MiCA, USDT has encountered delistings from significant European exchanges, including Coinbase, Crypto.com, and Kraken.
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