Crypto investor protections won’t take effect in EU until late 2024

In a sobering announcement, the European Securities and Markets Authority (ESMA) has revealed that cryptocurrency investors in Europe currently lack protection under the European Union’s cryptocurrency asset market regulations. The much-anticipated transition to the Markets in Crypto-Assets Regulation (MiCA) has been met with delays, leaving investors vulnerable.

ESMA’s statement, released on October 17, outlined that MiCA-based protections for crypto investors will not be operational until at least December 2024. Until then, investors are at risk of losing their entire investment in cryptocurrencies. ESMA emphasized that holders of crypto-assets and clients of crypto-asset service providers will not benefit from any EU-level regulatory safeguards during this period. This includes the inability to file formal complaints against crypto-asset service providers with National Competent Authorities (NCAs).

Even after December 2024, there is no certainty of full investor protection under MiCA until July 1, 2026. After MiCA applies to crypto asset service providers in late 2024, member states have the option to grant an additional 18-month “transitional period” allowing these providers to operate without a license, known as the “grandfathering clause.” During this period, investors might not have access to the complete rights and protections outlined in MiCA.

ESMA warned retail investors that there will be no such thing as a completely safe crypto asset, even after MiCA’s implementation. The regulator highlighted that MiCA does not address all the risks associated with crypto-assets, many of which are inherently speculative.

These revelations follow ESMA’s release of a second consultative paper on MiCA on October 5, following the enforcement of the regulations in June 2023. The implementation phase of MiCA involves consultations with the public on various technical standards. MiCA, introduced in 2020, aims to regulate crypto assets in Europe by amending existing laws, responding to the rising public interest in cryptocurrency investments that emerged in 2018. However, the regulatory landscape remains uncertain, leaving European crypto investors in a state of vulnerability and caution.

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