How MiCA threatens to unleash purge of crypto firms in Europe

European crypto hubs are in for a brutal awakening.

Today, thousands of crypto businesses flock to countries like the Czech Republic and Poland, thanks to their quick and painless registration processes.

The Czech Republic leads the charts with 9,372 crypto entities registered, and Poland follows with 1,067.

Other countries with tougher requirements like Germany or Finland, only have a handful.

However, the status quo is about to be turned on its head.

New legal regime

Starting from the end of 2024, European countries will begin to transition to a new legal regime for crypto service providers under the Markets in Crypto-Assets regulation, or MiCA.

Hundreds, or in some cases, thousands of entities registered with national authorities will be purged from the books.

The cost of compliance is only one of the reasons why this will happen, experts say.

Higher regulatory standards means compliance gets costlier, said Neil Samtani, CEO of VASPnet, a firm that analyses data on virtual asset service providers.

“We saw this in Estonia when a deadline to comply with new [anti-money laundering] requirements passed in July 2022, and their register of regulated VASPs dropped from 1,300 to less than 300,” he told DL News.

In the Czech Republic it costs about €40 to notify the regulator. In Poland, it currently takes two weeks and less than €150 to register as a crypto business.

With new laws coming into place, this will bring costs up to a minimum of €7,750 in Poland.

Natural persons wipe-out

A quirk in the registries of the top countries on the DL News tracker is that it includes natural persons who have signed up as a crypto business.

“Although individuals or natural persons can still be [crypto asset service providers] under MiCA, it is highly unlikely that most of those that have registered themselves as virtual asset service providers in countries like Poland and Czech Republic will be able to adhere to MiCA’s requirements,” Samtani said.

Supervisor transfer

A third reason that national registries may lose crypto businesses is that in some EU member states, a different government agency will start supervising the industry.

“As MiCA is implemented, certain jurisdictions may change the regulators that will supervise crypto-asset service providers in their respective countries,” Samtani said.

For example, in the Netherlands, the Dutch central bank has overseen crypto firms.

But under MiCA, the Authority for the Financial Markets will take over.

‘There are many registered companies or individuals who may have offered crypto services at some point but are no longer doing so today.’

Neil Samtani, CEO VASPnet

The central bank will remain responsible for supervising digital asset issuers.

Similarly, recently published draft law in Poland suggests that the Polish Financial Supervision Authority will start supervising the sector once MiCA goes live, instead of the tax authority.

When this happens in countries with existing registers of VASPs, we may see numbers drop significantly as it will be unclear whether or not existing registrants will be transferred to the new supervisory authority.

Dormant VASPs

Finally, MiCA will chop off any dead wood hanging on national registries.

“There are many registered companies or individuals who may have offered crypto services at some point but are no longer doing so today,” Samtani said.

“These so-called ‘dormant VASPs’ will also disappear from country registers when MiCA comes into force.”

Inbar Preiss is DL News’ Brussels correspondent. Contact the author at inbar@dlnews.com. Ana Ćurić is a data journalist. Contact her at ana@dlnews.com.