MiCA’s impact on EU boosts euro stablecoins, says JP Morgan

• MiCA redefines European market for euro-denominated stablecoins.
• Compatible stablecoins gain traction as others face challenges.
• MiCA’s impact could attract institutional investors to the market.

The European Union’s new Markets in Crypto-Assets (MiCA) regulations, which come into effect at the end of 2024, have the potential to transform the market for euro-denominated stablecoins. According to a report by JP Morgan, the guidelines require that only compliant stablecoins are used as trading pairs in regulated markets, which is already causing significant adjustments in exchanges and stablecoin issuers.

These changes are benefiting stablecoins that comply with MiCA requirements, such as Circle’s EURC, while others, such as Tether’s EURT, face significant challenges. Under the new rules, issuers are required to hold substantial reserves in European-based banks and obtain specific licenses to operate, which increases compliance costs. Tether, for example, decided to discontinue its EURT stablecoin, allowing users to redeem tokens for up to 12 months. This decision also led to the delisting of USDT from several exchanges in the European Union, reflecting the direct impact of the regulations.

Despite these obstacles, Tether remains one of the largest players in the global stablecoin market, maintaining relevance especially in Asian markets where regulations are less stringent. At the same time, the company has invested in MiCA-compliant solutions to secure its presence in the European market, including strategic partnerships with issuers such as Quantoz Payments and StablR.

The JP Morgan report also highlighted that the euro-denominated stablecoin market is currently small, accounting for just 0,12% of the global market. However, MiCA regulations could encourage European banks and financial institutions to adopt these stablecoins, facilitating blockchain-based financial transactions and meeting the growing demand for digital solutions in the financial sector. Furthermore, MiCA compliance could attract institutional investors, strengthening the position of euro-denominated stablecoins in the global market.

Another important point raised in the report is that the impact of European regulations could serve as a model for other jurisdictions. In the United States, for example, the adoption of similar regulations could gain momentum given the success of policies implemented by the European Union. This regulatory expansion could shape the future of the cryptocurrency market and increase investor confidence in the use of stablecoins.