Two major exchanges are about to obtain EU operating licenses, with Malta and Luxembourg becoming key players.
According to a report by Reuters on Monday, the two major cryptocurrency exchanges, Gemini and Coinbase, are set to receive regulatory licenses to operate in the EU, symbolizing a significant expansion under the newly implemented MiCA framework.
Sources revealed that Gemini is expected to obtain approval from Malta, while Coinbase is anticipated to secure a license through Luxembourg. Gemini was co-founded by twin brothers Tyler and Cameron Winklevoss, and the company applied for an operating license in Malta this January. Malta previously approved licenses for OKX and Crypto.com within weeks of the MiCA framework's launch.
A spokesperson for the Malta Financial Services Authority stated that the country has issued four cryptocurrency licenses to date and emphasized that strict anti-money laundering checks remain in place. The spokesperson noted that Malta's ability to quickly approve applications stems from 'in-depth understanding gained over the years.'
For Coinbase, Luxembourg is expected to be the first country to approve a US-listed cryptocurrency company under the MiCA framework. Coinbase is currently a component of the S&P 500 index, employing about 200 staff in Europe, and plans to add more than 20 employees at its Luxembourg office this year. A Coinbase spokesperson declined to comment on specific applications but told Reuters that Luxembourg is 'a respected global financial center.'
The MiCA passport mechanism raises concerns about regulatory arbitrage, with inconsistent standards across countries.
The MiCA framework will come into effect in June 2024 and will be fully implemented in December after the European Securities and Markets Authority (ESMA) issues final guidance for EU member states. The regulation aims to create regulatory consistency across the region while enhancing investor protection and promoting financial stability. Under the MiCA 'passport' mechanism, any license issued by a member state unlocks access to the entire 27-country market.
However, this mechanism has also raised concerns about regulatory arbitrage. Some EU regulators have privately warned that inconsistent enforcement could create regulatory blind spots for this approximately $3.3 trillion industry. The French financial markets regulator has publicly warned that ESMA's lack of direct licensing authority could trigger a 'race to the bottom' as countries compete to attract lucrative cryptocurrency businesses.
Sources revealed that ESMA has reviewed Malta's licensing process and is preparing an internal report. An anonymous senior regulatory official told Reuters that ESMA is concerned about accepting licenses granted in countries with fewer regulators.
Peter Curk, CEO of UK cryptocurrency portfolio management platform ICONOMI, stated that while the MiCA framework was initially designed to coordinate cryptocurrency regulation, 'if the regulatory capabilities between member states differ, we are likely to see a standard 'race to the bottom' that undermines consumer protection and cross-border trust.'
Stablecoin regulations become a focal point of controversy, with market adoption showing lackluster performance.
A controversial provision in the MiCA framework requires stablecoin issuers to hold a 'significant' portion of reserves in European banks, which is a key reason why Tether, the issuer of $USDT, has refused to seek registration under the MiCA framework. Nevertheless, information provided by Circle executive Patrick Hensen indicates that at least 10 stablecoins have been approved under this framework, including those issued by Circle, Crypto.com, Fiat Republic, and Société Générale.
Image source: Patrick Hensen, at least 10 stablecoins have been approved under the MiCA framework.
However, early signs indicate that the adoption of stablecoins under the MiCA framework is not ideal. Fabio Panetta, a former ECB official and current governor of the Bank of Italy, pointed out that in Italy, one of the largest markets in the EU, the MiCA framework has not led to significant stablecoin adoption. Instead, he noted that interest has increasingly shifted towards 'custody and trading services.'
In addition to Gemini and Coinbase, other major exchanges are also entering the EU market under the MiCA framework.
Bybit recently obtained regulatory approval to operate in the region through Austria.
Binance updated its deposit and withdrawal procedures in Poland this January to comply with the MiCA framework.
It is worth noting that not all companies have obtained licenses through Malta or Luxembourg; MoonPay and Hidden Road have obtained CASP authorization in the Netherlands, while cryptocurrency custodian BitGo received MiCA approval from Germany last month.
The EU's digital finance ambitions face coordination challenges, and unified regulation is yet to be tested.
The results of these approvals may affect how Europe balances investor protection with its ambition to become a global cryptocurrency hub. As the US may relax its regulations on the industry, internal EU divisions on licensing come at a time when lawmakers debate expanding ESMA's powers to ensure consistent enforcement of MiCA rules.
While Brussels formulates the regulatory framework, national agencies retain licensing power, and this system is now under pressure in one of the fastest-growing financial sectors in the world. Curk suggested that if EU member states view the MiCA framework as a 'licensing arbitrage opportunity,' they may ultimately drive business towards other regions like the US. He believes that granting ESMA more supervisory power would signal the EU's commitment to high collective standards and enhance the credibility of the MiCA framework in the financial community.
The memory of past industry scandals, such as the collapse of FTX in 2022, still looms over regulators' efforts to keep pace with innovation. The coming months will reveal whether the MiCA framework's promise of unified, transparent regulation can endure, or whether ambitions will suffer due to uneven enforcement.
'Coinbase, Gemini exchanges to receive MiCA licenses! Entering the EU? But rules raise concerns' was first published in 'Crypto City.'
