New EU Law To Trigger Exodus Of Crypto Ventures Flocking To UAE

Near-EU jurisdictions like the UK and Switzerland are the other countries which could be beneficiaries of the large-scale shift expected by ventures operating across the crypto-asset sectors following the implementation of the new regulation.

The new European Union (EU) regulation – Markets in Crypto-Assets (MiCA) regulation – approved by European parliamentarians in April last year and came into full force from December 30, is widely perceived to hit the financial viabilities of crypto exchanges and stablecoin companies.

The EU regulation, which introduces a pan-European licensing and supervisory regime for issuers of crypto-assets, crypto platforms and crypto-asset service providers (CASPs) across a broad range of crypto-assets, also stipulates that small stablecoins issuers must keep 30 per cent of their reserves in a low-risk commercial bank within the EU, while bigger players like Tether must keep 60 per cent or more in banks.

“The new regulations will definitely drive smaller – and even some larger firms – out of the EU, as they require not only compliance but also a significant increase in the investments companies must make to meet these requirements,” Uldis Teraudkalns, Chief Revenue Officer at Paybis, a leading globally operating a cryptocurrency exchange platform, told Arabian Business.

“Companies are definitely considering UAE as a destination for crypto business since it is increasingly positioning itself as a go-to jurisdiction and more and more reputable companies choose this path,” he said.

Teraudkalns said the other prime benefactors could be the near-EU jurisdictions like the UK and Switzerland, depending on how the regulatory regimes develop there.

The EU is the world’s first major jurisdiction to establish a comprehensive regulatory framework for crypto-assets.

Experts said although the MiCA regulation aims to enhance market stability, its stringent requirements might compel smaller – and even larger – crypto firms to exit the EU market.

UAE’s crypto-friendly policies

The Paybis senior executive said crypto sector companies currently based or operating in the EU will be forced to shift to other countries such as the UAE, which are widely considered as welcoming sector companies with friendly and stable policy and regulatory frameworks, due to increased cost of setup and running crypto businesses following the implementation of the new regulation.

“The main considerations are which geographies are your customers based in, and how can those be served from the UAE. Regulatory clarity and stability – how predictable is the UAE government and regulator to maintain its crypto-friendly course – will be another major factor,” he said.

Teraudkalns said access to banking – will companies be able to ensure all the necessary currencies and payment methods with banking partners in UAE or that support UAE companies – will also be an important factor which will influence the decision on shifting.

Industry players said though the new EU regulation came into force from December 30, most EU countries offer grandfathering periods ranging from 6 to 18 months for the exit.

EU capital reserve rule affects viability

Agne Linge, head of growth at WeFi, a globally operating decentralised finance platform, said the stipulations on reserving significant capital with banks under MiCA could significantly impact financial viabilities for companies operating in the crypto-asset sector, especially the large number of smaller players.

The new law requires that small stablecoins issuers keep 30 per cent of their reserves, while bigger players must keep 60 per cent or more in a low-risk commercial bank within the EU.

“Considering the large capitalisation and global adoption of Tether – a digital currency or stablecoin that is pegged to the value of the US dollar – meeting this demand is not economically viable without disrupting the broader crypto ecosystem,” Linge told Arabian Business.

“[Besides] Tether is unlikely to face significant effects from exiting the EU, as most of its liquidity originates outside the region,” Linge said.

Sector experts said with a robust market capitalisation of $138 billion and an average daily trading volume of $44 billion, Tether’s operations remain largely insulated from potential regional disruptions.

Besides, the USDT usage on P2P platforms, DEXs and holding in custodial wallets is still possible, meaning the stablecoins is still legal in the EU, they said.

The company also has a high profit margin and is on track to end the year with $10 billion in earnings.

Paybis’ Chief Revenue Officer Teraudkalns said access to the common EU market still remains a valuable asset for crypto ventures, so the potential for migration within the EU to more progressive and cost-efficient jurisdictions is also to be expected.

“MiCA will increase barriers to entry, thus reducing competition. Besides, increased cost of setup and running crypto businesses could lead to consolidation of the market and reduction in competition,” he said.