(Co-authored by Marcin Liszka.)
The EU Markets in Crypto-Assets Regulation, known as MiCA, will take effect on 30 December 2024. It will affect many crypto-asset businesses. How far will it affect bitcoin and businesses offering related services?
Broadly, it applies to entities issuing crypto-assets or providing related services. Since bitcoin has no issuer, issuance obligations will not apply to it. We must therefore examine whether and to what extent businesses providing bitcoin services are covered, particularly when authorisation will be required.
The definition of crypto-assets is broad: a digital representation of value or a right transferable and storable electronically using distributed ledger or similar technology. Bitcoin fits: it represents value digitally, can be transferred electronically and uses a distributed ledger, or blockchain. Bitcoin service businesses may consequently qualify as crypto-asset service providers, requiring authorisation and adaptation.
To determine coverage, check whether the activity falls within one of the listed regulated services.
Custody and administration of bitcoin on behalf of clients
The first category covers services where a provider takes control of clients’ bitcoin. The aim is to protect people who relinquish their private keys and accept a claim to payment or return of entrusted bitcoin, an IOU. Centralised exchanges and brokers holding customer funds in their own wallets, even temporarily, fall within it. So does any other service involving entrusted bitcoin. Examples include all custodial wallets, even ancillary ones in shopping apps, podcast services, cashback, crowdfunding, social networks or any other service, provided the provider holds customer funds in its own wallet. Sovereign, or non-custodial, wallet businesses generally remain outside this category.
Operating a bitcoin trading platform
This covers platforms through which clients offer to buy or sell bitcoin and exchange money for bitcoin or other crypto-assets directly with each other. It is regulated whether or not customer funds are entrusted to the provider. Peer-to-peer exchange solutions qualify even where they do not hold funds in their own wallets.
Exchanging bitcoin for funds or other crypto-assets
The next two categories cover exchange services where providers buy and sell bitcoin to clients for fiat money, such as złoty, dollars or euros, or other crypto-assets. Many exchanges and brokers fall within them.
Executing, receiving and transmitting bitcoin orders
The regulation lists brokerage services involving bitcoin purchases and sales. Executing, receiving and transmitting orders are covered when performed on clients’ behalf. Examples include over-the-counter (OTC) brokers accepting and executing such orders and subsequently settling purchases.
Advice on bitcoin
Crypto-asset advice is another regulated service. Traditionally, financial advisers help protect assets through expertise about products and markets, analysing clients’ needs to recommend suitable services. This includes recommendations to buy or sell bitcoin or use related services, such as a particular wallet, exchange or broker.
Portfolio management
Traditional investment portfolio management involves selecting and overseeing investments to meet financial objectives, usually maximising returns within the client’s accepted risk level. Such services are only beginning to emerge for crypto-assets.
Transferring crypto-assets
The final category covers transfers on clients’ behalf between distributed ledger addresses or accounts. For bitcoin, exchanges and brokers may provide this when withdrawing to designated accounts, including another exchange. Internal exchange transfers should not qualify because they change only internal accounting entries, not blockchain addresses. Custodial wallet transfers may qualify: the provider holding the key arguably executes the transfer on behalf of the user, who merely instructs it. In our view, routing by Lightning Network node operators does not qualify. Routing involves neither actual control over the sender’s funds nor a ledger change. Mining and node operation are expressly excluded, despite their role in validating transactions and updating the ledger.
Regulated activity
Existing providers covered by the regulation will need authorisation and must adapt. Each Member State will designate an authority. Poland has not yet decided whether the Financial Supervision Authority will issue authorisations or a new institution will be created.
The new rules apply from 30 December 2024. In theory, providers already operating should benefit from an additional 18-month transitional period ending on 1 July 2026. It is uncertain whether Polish-registered entities will benefit, as Member States may waive or shorten transition where national rules are less strict than MiCA. By 30 June 2024 they must inform the Commission and the European Securities and Markets Authority (ESMA) whether and for how long they will use it.
ESMA must prepare draft documents required under the regulation, including authorisation application documents, by 30 June 2024. In its statement of 18 October 2023, Poland’s Financial Supervision Authority encouraged existing providers to begin adapting as early as possible. It also warned that conduct currently harming clients or market integrity may affect assessment of an applicant’s credibility and integrity.
Originally published in iMagazine – Polish Mac Magazine, 11/2023 (PDF, in Polish).
