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

European cryptocurrency firms that have failed to obtain a Markets in Crypto Assets (MiCA) license face a deadline this week that could wipe out a large proportion of the market.

Companies licensed by national regulators before the arrival of MiCA, a unifying regulatory framework for Europe’s crypto firms that allows them to offer services across the 27-country trading bloc, may operate only until a transitional period ends on July 1. After that, their permission expires.

Europe was thought to have had more than 3,000 registered virtual asset service providers (VASPs), the pre-MiCA categorization, as of 2024. Poland alone accounted for well over 1,400 registrations. As of this month, there are just 231 MiCA-authorized crypto-asset service providers (CASPs).

“I estimate that 80% of the crypto players won't survive after MiCA,” Erald Ghoos, CEO of OKX Europe, said in an interview. “It's not only because of MiCA itself, it's because of the whole width and heaviness of the European regulatory burden. If you have a MiCA license and you want to offer and process stablecoins, you also need to have a PI [Payment Institution] or EMI [Electronic Money Institution] license.”

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.

Do what it's designed to do

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.

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.