The regulatory divide for crypto investors between the US and Europe is set to widen further. The announced appointment of Paul Atkins, known for his pro-crypto stance, as chairman of the Securities and Exchange Commission (SEC) is likely to lead to lighter regulation in the US. Meanwhile, in Europe, stricter rules under the Markets in Crypto Assets Regulation (Mica) are set to complicate matters for smaller players in the sector.
Mica, a comprehensive legislative framework designed to create a unified approach to crypto regulation across the EU’s 27 member states, will come into effect in January 2025. Complying with Mica’s stringent requirements is proving particularly challenging for smaller players, who risk being sidelined by the strict regulations.
Pro-crypto policy under Trump
Paul Atkins, a former Wall Street regulator and CEO of Potomak Global Partners, a consultancy firm specialising in crypto regulation, is set to lead the SEC. Donald Trump announced this via his social media platform, Truth Social, on Wednesday.
Atkins’ appointment signals a more lenient stance on cryptocurrencies, aligning with Trump’s broader agenda of reducing regulation and promoting innovation. For US crypto companies, this could pave the way for growth. However, the implications for Europe’s crypto market remain uncertain.
Growing pains for Mica
Mica’s rollout has not been smooth. Many smaller firms struggle to meet its stringent requirements, which cover risk management systems, reporting, and sustainability.
“Market participants with limited resources struggle to grasp the complexity of Mica,” says Nikolai de Koning, financial lawyer at Norton Rose Fulbright. “This has led to consolidation, with smaller companies leaving the market or being acquired by larger players better equipped to comply with the rules.”
Larger, well-funded companies seem to particularly welcome MiCA. They are hampered by the lack of consistency in crypto regulations among European member states. Greater harmonisation would therefore be highly desirable. “Moreover, it will no longer be necessary to apply for registration in every member state, a cumbersome and costly process,” said Dolf Diederichsen, CEO of Hyphe. “With a passport model, it will be easier to operate across different member states.”
A recent study by Eventus found that only 9 percent of crypto companies were fully compliant with Mica by mid-2024, while 25 percent had yet to start preparations. With the January 2025 deadline approaching, many firms are scrambling to meet the requirements or risk closure.
Innovation versus compliance
Mica offers larger players the opportunity to streamline operations and attract more institutional investment by reducing market fragmentation. However, for smaller firms, the compliance burden can be overwhelming.
“Smaller firms are often the drivers of innovation in the crypto world. They will be hit hard by Mica,” said De Koning. “The removal of these players could have unintended consequences for the broader market.”
An added challenge is the uncertainty surrounding Mica’s scope. For instance, proprietary trading firms are still unsure if they fall under the regulation. “What initially seemed like a reasonable, prudent approach is proving to be a double-edged sword,” De Koning warns. “Many firms underestimated the complexity and cost of obtaining a Mica licence.”
Moreover, transition periods vary between member states, with some offering no transitional measures at all. This further complicates matters for smaller firms operating across multiple jurisdictions.
The US advantage
While European companies face delays and regulatory hurdles, the US appears to be adopting a more relaxed approach. Under Atkins, the SEC is expected to reduce compliance pressures, making the US more attractive for investment and innovation in crypto.
“This is likely to lower regulatory barriers and spur innovation in the US crypto market, which may also spill over into the EU,” said De Koning.
However, De Koning does not expect Atkins’ appointment to significantly influence Mica’s impact. “Some hope for regulatory alignment with the US, but I’d be surprised if that happens soon,” he said. “While more investment flows could benefit European crypto firms, they may also face stiffer competition from US players operating under looser regulations.”
Market reaction
Markets have reacted positively to Trump’s election victory on 5 November. Cryptocurrencies surged, with Bitcoin topping both the 100,000-dollar and the 100,000-euro mark and Ethereum rising above 3,800 dollars, reflecting expectations of lighter regulation.
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