EU Passes MiCa Crypto Regulation and Lays the Groundwork for the Future of the Ecosystem
May 1, 2023
Stay up to date with our monthly crypto overview:
- The crypto asset market strengthened in April.
- Europe leads the way in crypto regulation with MiCA.
- Bitcoin (BTC) and Ether (ETH) are up by 6% and 9%, respectively.*
Market Overview - April
The crypto asset markets continued to rally in April. At the time of writing, Bitcoin and Ether were up by 6.20%* and 9.20%*, respectively. Cardano was the big winner this month, with a price increase of 16.8%*.Crypto investors in Europe had another reason to celebrate. Lawmakers in the European Union voted 517-38 in favor of the Markets in Crypto-Assets (MiCA) framework. It’s the first political vote by a major jurisdiction to introduce comprehensive crypto laws and clarity for the industry.With this vote, MiCA is the comprehensive legal framework for digital assets in the European Union. It will lay the groundwork for further regulation and legislation in the EU and beyond. MiCA aims to protect users and investors by requiring platforms, companies, and token projects to inform investors of potential risks and to provide detailed reporting or audits to reassure users that projects are secured.The focus is primarily on stablecoin issuers, who must maintain sufficient reserves to meet redemption requests in the event of mass withdrawals. It's expected that MiCA will become law in 2024, putting Europe ahead of the US and UK.In addition to MiCA, we also saw a second vote on the Funds Transfer Regulation, which passed 529-29 in favor and will require crypto operators to identify their customers in order to prevent money laundering.The crypto industry as a whole welcomes both initiatives. But they're far from over. With the legislation now on the table, it's up to the industry to reach out to Brussels and engage in a healthy debate.Some of the proposed rules on purchasing limits and the information operators must share with the EU are even tougher than current banking regulations and leave a sour taste in the mouths of privacy-conscious experts. In their eyes, such extreme measures could lead to a weakening of the privacy of users of European services and potentially hinder adoption or black market activity.However, the overall reaction to the news has been positive, and the crypto industry is now looking to the US and the UK. The latter has already announced a similar approach to crypto regulation, which should be available in the next twelve months.
Crypto Asset Market Performance Review
The biggest crypto winner this month has been Cardano’s ADA token. ADA outperformed BTC and ETH, rallying by 16.80%* versus last month's close.
Cardano’s wrapped Bitcoin version, cBTC, has gone live on Cardano’s testnet as the layer-1 project’s developer team seeks to attract Bitcoin holders looking to explore its small but growing DeFi ecosystem. Moreover, the Cardano Foundation revamped its delegation strategy, making ADA staking more community-centric, and we could witness an uptick in active addresses on the Cardano blockchain.Ethereum also had a positive month. Earlier in April, Ethereum developers completed the Shanghai upgrade. It enabled withdrawal for staked ETH tokens and was met with many deposits in the following weeks.The third biggest winner was Bitcoin. It continued its form from March and, for a brief period, touched the $31,000 mark, a price level we last saw in May 2022, and a positive sign that trust in the Bitcoin ecosystem is increasing. Although there was a slight pullback, the most prominent cryptocurrency ended April trading in the higher $29,000.
Bitcoin Tech Update
April was a great month for Bitcoin tech, with updates for popular services and announcements of new projects.
In case you missed it, we wrote extensively about nostr in our February commentary. In short, it’s a multi-faceted decentralized protocol with relays, where users can publish notes and reward fellow publishers with zaps over the Lightning Network. Popular applications like Damus, Snort, and Iris announced upgrades for usability features and new ways for users to interact with zaps.
Besides nostr, the next emerging project is Ordinals, which implements NFTs on Bitcoin. The idea of inscribing information to a single Satoshi directly sparked a new idea for a new token standard called BRC-20.It’s an experimental take to issue, use, and transfer fungible tokens on the Bitcoin blockchain. The idea was first introduced in March 2023 and currently has a small market cap of $17.5M with a few token projects.This new token standard proves there are many different ways of introducing tokens on top of Bitcoin. Before BRC-20, we saw implementations like Taro or Taproot, which enable currencies or tokens on top of the Lightning Network. With BRC-20, we might see a new way of directly implementing tokens or currencies on the main chain and using the security model of Proof-of-Work.
The last announcement was the Civ Kit whitepaper. A group of Bitcoiners sat together and thought about an improvement for peer-to-peer marketplaces.Civ Kit is a blueprint for developers and entrepreneurs to build their own censorship-resistant and permissionless global marketplace. Armed with the design of nostr and the architecture of the Lightning Network, the framework prioritizes privacy and security through escrowed trades, moderations, and know-your-peer (KYP) oracles.While the idea is still in its nascence and development has just started, it’s an exciting innovation aimed at addressing the marketplace problem with a Bitcoin mindset.
Institutional Interest in Bitcoin
While we saw an increase in institutional interest in Bitcoin last month by Fidelity and Nasdaq with their trading products, this month, we saw the announcement of a major Lightning Network project for institutions.Lightspark aims to become the standard for open payments at the speed of light on the Internet. This Los Angeles start-up seeks to solve a major problem in the Lightning community: usability and integrations into existing payment rails and the Internet.The Lightning Network is complex and requires a lot of technical knowledge. However, if you can get over the hump and set it up correctly, the benefits are immense! You can transact 1000 times cheaper than Visa or MasterCard and send up to 12 times more transactions per second. On paper, the Lightning Network is the perfect payment standard for the Internet.The team at Lightspark and their CEO, David Marcus, recognize this. They aim to provide a simple yet effective Lightning infrastructure for retail and institutional customers. Their products will range from simple checkout clients to powerful APIs and SDKs.Lightspark aims to integrate with existing payment rails and allow users to pay for their Internet purchases with Sats. The benefits to institutions and customers would be immense, allowing them to increase their profit margins and accept more payment requests than they currently do.
Bitcoin on Balance Sheets
Earlier this month, MicroStrategy’s chairman Michael Saylor announced an additional purchase of 1,045 BTC, which brings the Bitcoin on their balance sheet to a total of 140,000
Featured Portfolio Company
At Samara, we invest in innovative companies that are building the future of business and finance.In this section of our monthly commentary, we feature our portfolio companies that are building disruptive technologies that bring the power of Bitcoin to life.This month, we are featuring Deutsche Digital Assets (DDA), an institutional-grade crypto asset manager. DDA simplifies and professionalizes access to the emerging digital assets ecosystem.Deutsche Digital Asset’s product portfolio ranges from broadly diversified index funds and crypto ETPs on several traditional European exchanges to actively-managed quantitative solutions and funds.DDA aims to promote a global, tokenized, and inclusive marketplace accessible to anyone, anytime and anywhere. The company seeks to achieve this inclusivity by driving crypto adoption by welcoming investors into the new financial area in a climate-sustainable and secure manner.Find out more about Deutsche Digital Assets on their website.* Closing price data is from April 27, 2023.