Europe’s unlicensed crypto firms face ‘wipeout’ as MiCA deadline hits

Several firms have even asked if OXK, which obtained a MiCA license from Malta over a year ago, would acquire them, simply because they can’t afford the cost of compliance, he said.

MiCA first took effect on June 30, 2024, with rules governing stablecoins. The full body of regulations kicked in six months later, though firms with existing registrations were grandfathered in until July 1 this year. MiCA licenses, issued by a national regulator, permit companies to operate throughout the European Economic Area (EEA), which comprises the 27-nation European Union as well as Norway, Iceland, and Liechtenstein.

The European Securities and Markets Authority (ESMA), the EU’s financial rule-setter, has already called for unauthorized crypto-asset service providers to wind down their businesses in an orderly manner, while safeguarding clients’ interests, as the MiCA transitional period comes to an end.

The view could be taken that this is just what regulation is designed to do: MiCA has raised the compliance threshold and will eradicate firms that cannot meet that standard. On the other hand, there are concerns the cost of compliance is pricing out smaller firms and destroying innovation.

MiCA costs depend on the size of the firm, and there’s also the price of other licenses a firm might need. This might include an electronic money institution (EMI) license, which allows firms to process payments across the EEA, for example.

The locked capital needed for a MiCA spot license is relatively small, somewhere between 50,000 euros ($57,000) and 150,000 euros by class, according to Patrick Gruhn, founder and CEO of Perpetuals.com Ltd. (PDC).

What becomes costly is the license itself, which can be as high as 700,000 euros in year one and 250,000 euros a year after for a lean firm, or into the millions for a large exchange, Gruhn said via email. “Call it 12–24 months to the first authorized trade with maybe €100k lawyer fees,” he said.

As for the number of jobs that could be lost due to MiCA, no reliable estimate exists. However, many of the 80% of pre-MiCA platforms facing extinction are tiny shell entities, Gruhn said.

“That overstates the situation significantly,” Gruhn said. “And much of it is reallocation, since licensed firms have to hire compliance staff and the offshore ones don’t.”

Nevertheless, MiCA threatens to stifle crypto as an industry in some countries. The situation is particularly harsh in Poland, where domestic legislative delays and presidential vetoes have meant the Polish Financial Supervision Authority (KNF) has faced roadblocks in establishing a fully functional crypto application and licensing regime.

Mateusz Kara, CEO of Morphic Financial Group, which is headquartered in London and has deep roots and operations in Poland, said the MiCA deadline could “wipe out Polish crypto.”

“It will change the business landscape of crypto entities a lot,” Kara said in an email. “For example, in Poland, we have around 2,000 VASP entities. As far as I know, we are the only ones that have a MiCA license right now. So, I think you can imagine how many entities will need to shut down the business starting from the second half of this year.”

The likely result, Kara said, is that there will be no room for small crypto companies, and it will be hard for new ones to start.

“In my opinion, the European market will be consolidated by the bigger players, and we already see that happening,” he said.

Despite the message from ESMA and analysis from industry observers, it’s unclear what will happen after Wednesday’s cut-off. Even the crypto regulation experts at law firm Hogan Lovells, who co-authored a report on MiCA transition, hold differing views on possible levels of leniency going forward.

“None of us know what’s going to happen,” said John Salmon, a partner at the firm who has been following crypto since the industry’s early days. He pointed out that there have been different approaches across the 27 EU countries, some of which have been slow to produce their legislation.

“Given where we are, it does seem unlikely the regulators are going to be overly harsh, but we don’t know. And each country is probably going to have a different approach,” Salmon said in an interview.

Jeffrey Greenbaum, a partner at Hogan Lovell and co-author of the report, referred to a joint initiative last year involving financial regulators from France, Italy and Austria who called for ESMA to take tighter control of the way some member states administer MiCA.

“Smaller financial hubs like Luxembourg and Dublin want to keep their market share,” Greenbaum said in an interview. “Then there are other regulators that were upset by what happened with Malta and Cyprus. So we all have a good idea of which regulators are likely to be lenient, because they have to be, and we can have a good idea of who’s probably going to be more severe, and towards whom.

Lavan Thasarathakumar, a senior adviser at Hogan Lovells, said there will probably be a hardline approach from the July 1 deadline.

“Any regulator, jurisdiction, or member states allowing firms to continue to operate under their existing national law would be deemed in breach of EU regulations,” Thasarathakumar said in an interview.

One alternative for smaller participants was recently offered by crypto custody firm BitGo. BitGo Europe, which is authorized by the German regulator BaFin, said firms could move their clients’ wallets inside its regulated custody rather than struggle with MiCA’s regulatory burden.

CEO Mike Belshe said the impending purge of crypto firms in Europe, with only a 17% conversion rate to MiCA compliance, “feels like a setback,” given a growing institutional momentum in Europe, and plans to create a regulated euro stablecoin.

“With less than 250 authorized service providers, European users will become the biggest victims of the end of this transitional period,” Belshe said via email.

UPDATE (June 29, 10:13 UTC): Updates number of MiCA approved companies in third paragraph.