ESMA To Change The Crypto Landscape In The European Union

Blockchain, News, Opinion, Regulation | January 16, 2020 By:

European have been dealing with the idea of letting some of their favorite companies go in the coming 3 years due to a new announcement from the European Securities and Markets Authority.

You see, ESMA is the regulatory authority that is governing the financial markets of the European Union. Not the whole of Europe though, just the EU. But considering the tight economic ties between European countries, most of the ESMA influence does indeed seep into non-members such as Switzerland and Norway.

The regulator made the announcement in order to let the EU population know about its plans in the next three years of 2020-22. Most of the document is riddled with promises of paying a lot more attention to the derivatives market and holding up the MiFID regulatory framework, but a small part of it saw the regulator promising extensive changes in how cryptocurrencies are regulated within the union.

ESMA’s strict background

ESMA is not something that investors like to hear about in the news, simply because it’s usually a sign of additional prohibitions and limitations. ESMA in the news is especially scary for service providers such as brokers, exchanges and now crypto companies.

You see, the regulator has quite the background of banning and limiting several assets. In the past, ESMA had introduced a complete shutdown of the European binary options industry (and for good reason), as well as terrible limitations on CFDs.

Some say that Forex was the only industry that managed to get away scot-free from the regulator simply because the European Commission was focusing on strengthening the Euro and couldn’t afford strict regulations limiting the number of exchanged volumes.

What I like to say is that ESMA was singlehandedly responsible for introducing margin trading on cryptocurrency exchanges in the European Union.

You see, in the past, many EU crypto traders were using CFD platforms as a way to increase their ROI for Bitcoin and other cryptocurrencies. Why? Because CFD brokers were allowing leverage on crypto investments. Suddenly, people investing only $500 would have their stake grown to $50,000 with almost guaranteed profits.

But once 2018 hit, the risk associated with leverage was clearly displayed. Once CFD brokers were out of the picture, it was up to the crypto exchanges to take margin trading into account. Lo and behold, we now have leveraged crypto trades on exchanges.

What does the 2020-22 plan mean?

The document talking about the new regulations doesn’t go into too much detail, but it’s obvious that ESMA wants a safer environment for crypto investors in the EU.

It is very likely that they will use the UK module of requesting crypto exchanges for additional information on trader activities. According to this cryptocurrency trading guide, that means gaining access to users’ private keys and monitoring their private keys on a much more focused level.

But when it comes to upholding the reputation, it’s likely that ESMA will not be too harsh on the crypto industry this time. At least not at the beginning of their 2020 plan that is.

Potential hit on ICOs

Much like every other regulator in the world, ESMA is also using ICOs as a scapegoat to vilify the crypto industry in order to justify its limiting regulations on the industry.

Although many experts agree that it’s in the best interest of ESMA for the EU to be prosperous in the crypto industry, other experts believe that additional surveillance is required.

Even if ESMA is not using ICOs as a scapegoat to justify restrictions, they’re using it to justify the encroachment on users’ personal information on the exchanges.

The blockchain’s main value is that it’s anonymous, but the state at which it is today does not provide the opportunity to be self-sufficient without service providers spending millions of dollars on maintenance.

Therefore, the decentralization of the blockchain is somehow jeopardized, thus giving regulators like ESMA a large consolidated location of data, also known as a crypto exchange. That’s definitely what their first law will target, potentially asking for more frequent info disclosures.

The reason why ICOs are always used as scapegoats is due to their overwhelming tendency of turning out as scam operations. According to research, more than 80% of ICOs in 2017 alone were scams and appropriated millions of dollars from unsuspecting investors.

Tying any law which promises to prevent things like this is guaranteed to be approved.

Nothing will be banned

As already mentioned previously in the article, ESMA is not set on banning anything regarding cryptocurrencies. They are simply trying to create a situation where the market could thrive in the future. It’s something like a “hard times now, good times later” approach to the whole situation.

Additional surveillance will lower the service quality of crypto exchanges for a while, but once the regulation is automated it could be quite the advantage for the future.

People will have a lot more clarity on where they are investing and what they are investing in.

Banning is out of the question, simply because they would never be able to pass it through the EC (European Commission), which is determined to challenge China’s blockchain development, which is impossible without a strong crypto industry locally.

Furthermore, now that the United Kingdom will finally approve Brexit, ESMA has the regulatory clarity of including only member states in the new plan. It’s not known whether the current custom crypto regulatory legislations in member states will be discarded and replaced by a universal ESMA one, but time will tell as the lawyers and experts get to work in a few months.