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The rate of cryptocurrency adoption in Europe has increased significantly over the past year. However, despite this growth, the regulatory framework has lacked clarity. Various jurisdictions have their own crypto framework, which has caused confusion in businesses operating in the sector.
A top official of the European Union has called upon a “global agreement on crypto” to offer protection to investors and limit the impact of Bitcoin mining on the environment.
EU official calls for global crypto regulations
Mairead McGuinness, a financial services commissioner at the European Union, has said that cryptocurrencies should not remain unregulated. In a publication at The Hill, the official addressed the risks that came from cryptocurrency investments, including being used to avoid sanctions and the effects on financial stability.
“I believe that the EU and the US can together lead the way on a shared international approach to regulating crypto. Together, we can enable innovation in finance while protecting consumers and maintaining financial stability,” McGuinness wrote.
The official went ahead to mention the benefits derived from the cryptocurrency sector. These benefits include the ability of blockchain technology to promote decentralization and remove the need for intermediaries during transaction processing. This makes transactions more efficient and transparent. Since blockchain transactions are recorded on a public ledger, financial information is accessible to all market participants.
The other official added that blockchain technology could streamline the payments sector. It could foster speed and safety where billions of dollars and euros could be unlocked to cover risks related to credit and settlements.
Despite these benefits, there were significant risks posed by the sector. These risks made crypto dangerous to the existing financial sector, given that the market remains largely unregulated and unsupervised.
“With unregulated crypto, consumers run the risk of buying into unsuitable products, relying on incomplete information. Investors risk losing money because of fraud, deception or simply the volatility that has characterized crypto markets since their inception,” she said. “We also need to ensure market integrity and make sure rules against market abuse such as insider trading are enforced.”
Recently, there has been concern over the possible use of cryptocurrencies to avoid sanctions. The concerns come amid the heavy sanctions being imposed on Russia by Western countries over the invasion of Ukraine.
The EU recently imposed its fifth set of sanctions against Russia and this covered crypto transactions. The move resulted in some cryptocurrency exchange platforms, such as Binance, blocking the accounts of top Russian officials. Binance also limited the transactions that Russians could make in crypto assets.
Crypto regulations in the EU
McGuinness also addressed the issue of high energy consumption caused by crypto transactions and crypto mining activities. Earlier on, the EU had proposed a ban on proof-of-work mining. However, this bill was voted against.
The EU is among the only regions with a comprehensive regulatory framework for cryptocurrencies. The EU put forward the Our Markets in Crypto-Assets (MiCA) proposal to bring cryptocurrencies into a regulated sector. MiCA promotes innovation in the financial sector, offering legal certainty and addressing the risks posed by crypto assets to financial stability. The regulatory framework will also address the concerns of money laundering.
As the EU plans to regulate cryptocurrencies, the region is also planning the launch of a central bank digital currency (CBDC). The European Central Bank unveiled an assessment phase for the digital euro in July last year, and it could be ready with the needed legislation needed for the process.
However, the EU is not calling upon global cooperation to make crypto regulations more effective and tame all the effects of crypto assets on the environment.