Bitcoin’s price up and down has been one of the hottest topicin the most relevant worldwide business newspapers in the last 2 years. Unjustified enthusiasm and skepticism about this phenomenon have been several times said around crypto currencies and Distributed Ledger Technology, forgetting the total crypto-assets market capitalization of around EUR 110bn as of end-December 2018*that justify fully the investments on Crypto Currencies.
The ESMA(European Securities and Markets Authority) just published* an official document about Initial Coin Offerings and Crypto-Assets where it seems to confirm that the direction of ICOs and crypto-assets trading is a trend that they monitor with high attention. Being an official neutral institution ESMA cannot argue about Crypto-Asset future values, but we can say if even the European Regulator is asking which Law should regulate these transactions - exactly like all plain financial assets and derivates – they are convinced that a consolidated market will raise around Crypto-Asset trading.
What are Crypto-assets?
Crypto-assets are a type of private asset that depends primarily on cryptographyand Distributed Ledger Technology(DLT). There are a wide variety of crypto-assets. Examples of crypto-assets range from so-called cryptocurrencies or virtual currencies, like Bitcoin, to so-called digital tokens issued through Initial Coin Offerings (ICOs). Some crypto-assets have attached profit or governance rights while others provide some consumption value. Still others are meant to be used as a means of exchange. Many have hybrid features. Crypto-assets are relatively new and the market isevolving. There are more than 2,000 crypto-assets outstanding.
And which is the current value of Crypto-Assets Market?
Hundreds of crypto-assets have been issued since Bitcoin was launched in 2009. There are more than 2,050 crypto-assets outstanding representing a total market capitalization of around EUR 110bn as of end-December 2018 – down from a peak of over EUR 700bn in January 2018.9 Bitcoin represents just over half of the total reported value of market capitalization, with the top five crypto-assets representing around 75% of the reported market capitalization.
Why EU is working on a Crypto-Asset regulation?
In its 2018 FinTech Action plan, the European Commission requested the European Supervisory Authorities (ESAs) assess the suitability of the EU regulatory framework with regards to ICOs and crypto-assets more generally.
Crypto-assets raise specific challenges for regulators and market participants, as there may be a lack of clarity as to how the regulatory framework applies to such instruments. Where it does apply, there may be areas where crypto-assets require potential interpretation or re-consideration of specific requirements to allow an effective application of regulations. ESMA considers it important to take a technology-neutral approach, to ensure that similar activities and assets are subject to the same or very similar standards regardless of their form.
So, which are EU next actions on Crypto-Assets Regulation?
Where crypto-assets do not qualify as financial instruments (or where they do not fall within the scope of other EU rules applicable to non-financial instruments such as the e-money directive as identified in the EBA’s report and advice on crypto-assets3), ESMA believes that the absence of applicable financial rules leaves consumers exposed to substantial risks. ESMA believes that EU policymakers should consider possible ways to address the risks in a proportionate manner.
Which are for EU the risk of Crypto-Assets Market?
ESMA is concerned about the risks it poses to investor protection and market integrity. ESMA identifies the most significant risks as fraud, cyber-attacks, money laundering, and market manipulation. Meanwhile, there could be benefits in ICOs provided the appropriate safeguards are in place. The development of tokenisation, i.e., the representation of traditional assets on DLT, could bring benefits, although it is still at a very early stage. Crypto-assets are one application of DLT. ESMA sees many potential benefits in DLT but there are important challenges
What’s Next on Crypto-Assets market?
ESMA will continue actively monitoring market developments, in an effort to foster supervisory convergence among NCAs. ESMA will also continue to engage with global regulators, as we believe international cooperation is required to address this global phenomenon
Finally, being neither a Crypto fundamentalist neither unjustified skeptical, OM thinks that Crypto-Assets market will continue to raise in Europe and we will help you to analyze trends and market movers’ decisions
Aurthor: Giulio Mariani
*European Securities and Markets Authority, 2019. ‘Advice. Initial Coin Offerings and Crypto-Assets’