The MiCA Regulation is the world’s first comprehensive and general legislative measure that addresses the phenomenon of cryptocurrencies in a horizontal manner.
Will we witness a revolution in the traditional areas of activity for banks and EMIs (Electronic Money Institutions)? What could be the development of the crypto-assets market regulated by the new European Regulation? What role will the digital euro play in a system that is rapidly evolving towards the world of cryptocurrencies?
We discussed this with Antonio Ferraguto and Francesco Rampone, partners at La Scala, a joint-stock law firm and Professional Partner of our network.
The MiCA Regulation (EU) No. 2024/1114 (the Regulation) does not provide an explicit definition of "cryptocurrency", clearly referring to the one already provided in the context of anti-money laundering legislation (see the next paragraph). Nor does it define what a "token" is, presumably considering it a sufficiently self-explanatory concept, while using this term as a central element for the tripartition of the "objects" around which its entire regulation revolves: Asset-Referenced Tokens (ART – Title III), Electronic Money Tokens (EMT – Title IV), and the residual category of Tokens that are neither ART nor EMT (Title II).
This lack of definitional clarity has led some early commentators to believe that cryptocurrencies were excluded from the scope of the Regulation, meaning that the issuers (and perhaps even the offerors and service providers) of the most well-known, widespread, and potentially harmful digital assets for market protection and savings would not be subject to the informational, capital, and governance constraints of the European framework.
It is therefore up to the interpreters to clarify the nature and function of the phenomena regulated by the Regulation, taking the first step to provide certainty to savers, investors, institutions, and the market in general, ensuring a rapid and orderly development of the crypto ecosystem in Europe by riding the wave of this technological revolution.
The European legislator has already addressed cryptocurrencies in the context of anti-money laundering regulations, introducing the following definition in Article 1 of Directive (EU) 2018/843 (also known as the 5th Directive): "Virtual currency: a digital representation of value that is neither issued nor guaranteed by a central bank or public authority, not necessarily linked to a legally established currency, used as a means of exchange for purchasing goods and services or for investment purposes, and transferred, stored, and traded electronically."¹
When reading this definition, it should first be noted that a technique of exclusion was adopted ("neither issued nor guaranteed" and "not necessarily linked"), which leaves a wide margin of semantic ambiguity. The legislator then refers to the actions of the holder ("used as a means of exchange"), as if the nature of the instrument were not solely anchored to its intrinsic characteristics but depended on the intentions of its user. Nonetheless, the core of the definition is that a virtual currency is, in general terms, a "digital representation of value." However, this raises further questions: what is "value"? And why, for example, is a bitcoin not considered a value in itself but merely its "representation"?
Cryptocurrencies are a particular class of digital assets commonly referred to as tokens (which include well-known examples such as NFTs, security tokens, and utility tokens). This class is characterized by consistency, meaning the ability to reproduce in a digital environment the uniqueness and rivalry typical of physical assets².
Before the advent of DLT (Distributed Ledger Technology), which enables the creation of tokens, it was impossible to distinguish a digital asset from its copy. For instance, it was not feasible to use a regular file to incorporate an obligation (financial or otherwise) of the issuer towards the holder, as such a file could have been copied, thereby illegitimately multiplying the amount of credit or obligations due.
Today, however, a statement related to a credit can be tokenized, meaning it can be incorporated into a digital medium (the token), without being subject to unauthorized duplication: a bitcoin cannot be copied (duplicated), only transferred.
In the previous section, it was shown that tokens can be suitable instruments for incorporating a credit or other obligation, or for transferring such credit or obligation through the simple delivery of the token that embodies them.
Common banknotes, for instance, serve exactly this function. They allow the debtor to extinguish their obligation through the simple delivery of the title (the banknote). Indeed, the holder of a banknote is considered, until proven otherwise, the creditor of the face value of the banknote in their possession. This is a credit ultimately claimed against the issuer, i.e., the State that holds the exclusive right to issue currency with the value indicated on the banknote. A credit that can therefore be freely spent, for example, to pay taxes or, if the banknote has legal tender status, to settle other debts payable within the issuing State.
Thus, while banknotes always have a clearly identified issuer and represent a credit tied to that issuer, one may ask whether bitcoin or other similar cryptocurrencies can truly be considered "currencies" or "money" in tokenized form³.
This question is likely to remain unanswered, as it depends on how "currency" and "money" are defined. In this regard, it should be noted that the term "currency" has been somewhat poorly chosen, as in both Italian and English, this term refers to the unit of measure used to quantify money, but it is not the object of issuance and trading that anti-money laundering regulations seek to govern. In other words, "currency" is a unit of measurement, while the banknotes and coins in our pockets are the titles representing the credit we hold (expressed in that currency). Similarly, we should not call bitcoin "cryptocurrency," as the term implies, but rather "crypto-cash." Bitcoin, in a broader sense, is merely the name of the unit that appreciates or depreciates based on trading volume.
Beyond these linguistic considerations—which are crucial for grasping the true nature of cryptocurrencies—one irrefutable fact remains: official currencies (those issued by States, such as the euro and the dollar) cannot be equated with bitcoin because, unlike official currencies, bitcoin does not represent a debt of the issuer.
As mentioned in §1, the Regulation does not explicitly address cryptocurrencies. It is therefore up to the interpreter to classify them, case by case, within one of the three categories established by MiCA (ART, EMT, and other tokens under Title II of the Regulation).
We can certainly exclude the possibility that cryptocurrencies fall within the category of electronic money in tokenized form (EMT – Title IV of the Regulation), as this refers exclusively to regular electronic money (regulated by Articles 114-bis et seq. of the TUB, or Italian Consolidated Banking Act) in tokenized form⁴.
Therefore, the next step is to determine when cryptocurrencies fall under the rules set out for ART (Title III of the Regulation). Generally, this should only apply to stablecoins, which, rather than having a single official currency as their underlying asset (in which case they would be considered EMTs), are backed by a basket of multiple currencies or other securities that, according to the ART definition itself, "aim to maintain a stable value" (whether they succeed in doing so or not is another matter)⁵.
In this case, however, they would almost certainly fall within the definition of financial instruments, which, by explicit legal provision, are excluded from the scope of the Regulation (Article 2.4.a)⁶.
Thus, we are left with the residual category of crypto-assets that are neither ART nor EMT under Title II of the Regulation. However, in this case, cryptocurrencies like bitcoin would be excluded because, on the one hand, they are tokens that are not tied to any underlying asset (they have no anchor to which their value is linked), and on the other hand, they are crypto-assets that are "automatically created as a reward for maintaining the distributed ledger or validating transactions" (Article 4 of the Regulation).
In conclusion, there appears to be no general room for bitcoin or other similar cryptocurrencies in the Regulation. However, there are projects in which tokens issued by the promoter are not linked to an underlying asset, are not issued as compensation for nodes, and are nevertheless used by users as a medium of exchange for the purchase of goods and services offered by the issuer or by other entities connected to it through a consortium-type relationship. These are typical loyalty programs (loyalty points) commonly seen in large retail organizations.
This seems to be the only case in which a properly defined cryptocurrency would be subject to the provisions of Title II of the Regulation⁷.
While the above developments are taking place in the world of crypto-assets, the European Central Bank (ECB) has long been working on introducing the digital euro to address the evolving global financial landscape, which is becoming increasingly technology-driven, and to ensure the competitiveness of the European banking system.
Crypto-assets, cryptocurrencies, and especially stablecoins pose significant challenges to the payment system and potentially threaten the financial stability of the system. In response, Europe must take new steps to mitigate these risks.
As is widely known, competition within payment systems is more closely related to stablecoins than to cryptocurrencies not backed by an underlying asset, such as bitcoin, which are more commonly used as investment instruments.
As mentioned earlier, in light of the MiCA Regulation, stablecoins can be divided into two broad categories based on their specific characteristics:
Stablecoins have seen significant growth in recent years, both in terms of the types available on the market (some even issued by major financial institutions) and in terms of market capitalization.
Stablecoins, which have received formal recognition and regulation within the European Union through the MiCA Regulation, are thus a source of concern for the ECB and national central banks.
In fact, as the US dollar remains the primary reference and reserve currency for global central banks, stablecoins tend to be pegged to this currency (approximately 92% of stablecoins globally are denominated in dollars). It is clear, therefore, that monetary sovereignty in the payments sector is at risk if stablecoins linked to non-EU currencies capture a greater market share, potentially undermining the role of the euro in the payment system.
Several types of responses have been activated within the Eurosystem to address this problem.
First of all, efforts are being made to monitor entities operating in the decentralized finance (DeFi) sector that participate in the European financial market (hence the MiCA Regulation and previously the Fintech Directive regarding the issuance of securities and values in digital format).
In addition, the development of private initiatives that support innovation and autonomy within national borders is being encouraged, including through the so-called sandboxes.
Finally, work has been underway for some time on the introduction of the digital euro, aiming to promote its use as the primary instrument in tokenized payments.
In this regard, it is crucial to strike a proper balance between necessary regulation, the protection of personal data and information relating to users, and at the same time, allowing for broad freedom of use. It is clear that a digital payment tool subject to significant restrictions would not gain users' favor and, therefore, would not achieve the necessary adoption.
For instance, if the anticipated usage limit of the digital euro is set at €3,000 for each “deposit” without the possibility of earning interest, one does not need to be a financial expert to predict that cryptocurrencies or stablecoins would be unlikely to be replaced by the digital euro.
In this context, it is worth recalling that the Governor of the Bank of Italy, Fabio Panetta, explicitly stated that "to contribute actively to the Eurosystem’s digital euro project, an innovative, secure, and freely accessible payment method for all citizens," the Bank of Italy "is adopting an organizational solution that, by bringing together all necessary skills, will be able to perform the required activities in a flexible and agile manner."
The paper published by the Bank of Italy, titled “CBDC and The Banking System”, is particularly interesting from an informational perspective, in which the central bank outlines the various benefits that could arise from the adoption of the digital euro.
According to the Bank of Italy, a publicly available CBDC (Central Bank Digital Currency) would complement central bank reserves and banknotes (current forms of public money) with broader access compared to the former, which are currently available only to credit institutions in digital form.
On the other hand, a poorly designed CBDC could lead to privacy concerns, as central banks would have access to unlimited amounts of sensitive data on the behaviors of euro users. Moreover, issues related to monetary policy or financial stability could arise if bank deposits at traditional banks were to decrease.
The implementation of the digital euro is not without challenges: as has been noted by specialized press outlets, the digital euro project must contend with the limitations of current technological infrastructure. It is plausible that the ECB’s digital currency could be issued without relying on distributed ledger technology (DLT), as creating a private network from scratch would take too long, while public networks pose issues of control and service continuity that are difficult to overcome. This is an open topic still under discussion.
It is therefore evident that, for a digital euro capable of competing with increasingly advanced means of payment such as cryptocurrencies, particularly those pegged to a strong currency, greater courage is needed in addressing the realities of digital payment systems and in developing an adequate European CBDC quickly.
Text as amended by Legislative Decree 231/2007 (Art. 1(qq). Same definition of cryptocurrency was shortly thereafter taken up by Legislative Decree No. 184 of November 8, 2021, on “combating fraud and counterfeiting of non-cash means of payment” (implementing Directive (EU) 2019/713). Preceding the normative definitions cited above is the EBA's 2017 definition: “Virtual currencies is a digital representation of value that is neither issued by a central bank or public authority, nor necessarily attached to a legal tender.” See also the similar defining guidelines of the Financial Action Task Force (FATF (2020), Money Laundering and Terrorist Financing Red Flag Indicators Associated with Virtual Assets, FATF, Paris, France,) and the Organization for Economic Cooperation and Development (OECD (2022), Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard, OECD, Paris, Sec. IV, nos. 2 and 3).
The characteristics of a token may be somewhat different, but they are well summarized in the English locution append only, meaning that a token is bound to the information that defines it even if added later. Information pertaining to its origin, content and ownership. For this reason, a token can be durable, historicized, induplicable and unchangeable.
To answer this question, it should first of all be pointed out that there is no ban on “printing” money. Anyone can do so, including in the form of cryptocurrency, while obviously respecting the state monopoly on the use of the so-called official currencies (euro, dollar, etc.).,Nor is there any regulation on how to issue private money, nor can the rules on personal bills of exchange and corporate bonds be used by analogy.
Electronic money is an attempt to create digital cash, which, however, not having the characteristics of tokens (uniqueness and induplicability, and thus direct expendability with the creditor), always requires the intervention of an intermediary for transactions.
An example is Libra project, sponsored by Meta a a few years ago, then abandoned more for political reasons than feasibility.
The definition of “financial instrument” is provided by MIFID 2 (and in TUF, Art. 2). Here, too, the interpreter is lost as the defining technique used is that of listing individual cases among which, moreover, there is that of “securities value,” a residual, broad and at best uncertain (undefined!) notion.
As well as the other specific disciplines of the regulations on operations and prize competitions set forth in Presidential Decree 430/2001.
