European Regulators Call for 'Common EU-Wide Approach' on Cryptocurrency Regulations

Two major European regulators, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have recently called for a ’common EU-wide approach’ to cryptocurrency regulations, in order to ensure investor protection.

According to a recently published report, the EBA has asked the European Commission to look into unified rules on cryptocurrencies, and noted cryptoasset activities aren’t currently falling under existing EU laws but are “highly risky” for investors.

As such, as first reported by CoinDesk, the regulator urged the Commission there’s a need for a “comprehensive cost/benefit analysis, taking account of issues inside and outside the financial sector, to determine what, if any, action is required at the EU level at this stage.” The regulator’s executive director, Adam Farkas, stated:

The EBA's warnings to consumers and institutions on virtual currencies remain valid. The EBA calls on the European Commission to assess whether regulatory action is needed to achieve a common EU approach to crypto-assets. The EBA continues to monitor market developments from a prudential and consumer perspective.

The EBA also asked the Commission to take into account the crypto-focused guidelines the Financial Action Task Force (FATF), the global anti-money laundering (AML) watchdog, is expected to issue this year. The EBA itself revealed it plans on monitoring the crypto sector.

The European Securities and Markets Authority (ESMA) also published a report on cryptocurrencies and initial coin offerings (ICOs). In it, it claims some cryptoassets could fall under the European Union’s MiFID financial framework and be considered financial instruments.

Steven Maijoor, ESMA’s chairman, noted some adjustments would have to be made as “existing rules were not designed with these instruments in mind,” which means “certain requirements are not adapted to the specific characteristics of crypto-assets.”

As for the cryptocurrencies that wouldn’t fall under MiFID, these would still have to comply with AML rules. To further protect investors, risk disclosure should be enforced to alert them of potential risks. Maijoor added:

In order to have a level playing field and to ensure adequate investor protection across the EU, we consider that the gaps and issues identified would best be addressed at the European level.

Meanwhile, as CryptoGlobe covered, the cabinet of the Irish government has approved a law to implement a new regime of financial regulations, a large part of which outlines regulations for the cryptoasset industry in the country.

Unregulated Crypto Derivatives Exchanges Dominate Regulated Alternatives

Trading volume on unregulated Bitcoin (BTC) derivatives exchanges is growing rapidly, and continuing to far outpace their regulated-institutional counterparts, according to the most recent (March) CryptoCompare Exchange Review.

unregulated exchange volume(source: CryptoCompare)

Both OKEx and bitFlyer exchanges hosted an average daily derivative trading volume worth well over a billion dollars during March - $1.5 billion and $1.14 billion respectively according to CryptoCompare. It seems then that the older derivative stalwart BitMEX, at $645 million daily average volume, has been rapidly eclipsed by the newer exchanges.

regulated exchange volume(source: CryptoCompare)

Institutional, fiat-dealing (regulated) exchanges hosted a fraction of this volume, the highest being $70.5 million on the CME exchange. CryptoGlobe reported last month the CME’s primary competitor, the CBOE, was shuttering its Bitcoin futures products citing low demand. CME volume spiked last month, but is down this month below to January levels.

However, despite the relatively low average volume, the CME did have one bumper day of record-breaking Bitcoin futures trading volume, trading nearly $550 million worth of bitcoin on April 4th - days after Bitcoin’s unbelievable breakout from its $4,200 resistance.

Outflanked

The ease of onboarding new customers may explain why the unregulated exchanges get more attention.

In a recent interview, BitMEX CEO Arthur Hayes underlined his exchange’s ability to “onboard a [new] customer within 10 minutes,” by accepting Bitcoin and only Bitcoin for funding. In addition, no KYC/AML checks are required to trade on BitMEX, merely an email address; whereas OKEx offers margin trading only after basic KYC/AML checks. These exchanges are registered in Seychelles and Malta, respectively, specifically to avoid such onerous accounting requirements for their customers.

As CryptoGlobe covered early in 2019, however, BitMEX and other derivative exchanges including OKEx officially exclude certain citizens from trading on their platforms due to regulatory concerns, most notably US citizens.

Hayes also intimated at the upcoming launch of an interest bearing Bitcoin-only bond, which he speculated could be used to leverage credit into future Bitcoin-denominated economic activity.