EU stablecoin ban would lead to ‘extreme volatility’, lobbyists warn

Lobbyists sound the alarm on European crypto-currency legislation.

Crypto-currency industry lobbyists have warned that the European Union’s proposed regulation on crypto-currency markets could be a disaster for the industry if it goes into effect in its current form.

On a letter to the EU Council, Blockchain for Europe and the Digital Euro Association warned that MiCA’s plans to introduce restrictions on cryptos could impact USDT, USDC and BUSD. According to their letter, MiCA’s current guidelines would effectively ban the three major stablecoins in 2024, which would have serious repercussions for the entire industry. The letter notes that a ban would cause a “market seizure“, which would lead to “potentially destabilizing effects and a significant leakage of crypto business out of the EU.“

The EU’s MiCA legislation proposes to limit the issuance and use of tokens that are not denominated in an official currency of one of the union’s 27 member states. The proposal includes plans to introduce limits on tokens used as a medium of exchange, which Blockchain for Europe and the Digital Euro Association have objected to as it could apply to stablecoins used for trading.

According to the letter sent to the EU Council, if the proposed legislation were implemented, it would result in a “extreme short-term volatility“, “dislocation effects“, a “fragmented liquidity” and an exodus of cryptographic innovation from the EU. According to the letter, the restrictions would drive users to unregulated services outside the EU and “would undermine the EU’s efforts to leverage the potential of crypto and blockchain.“

Stable currencies pegged to the euro cannot compete

While the legislation would not impact euro-denominated stablecoins, Blockchain for Europe and the Digital Euro Association said the market would still be severely affected. This is because euro-denominated stablecoins make up only a tiny fraction of the market compared to USDT, USDC and BUSD (the letter notes that euro-denominated stablecoin trading volumes are about $21 million compared to USDT’s $53 billion, citing research from the European Central Bank). “It is unrealistic to expect stable currencies referenced in euros to catch up with stable currencies referenced in dollars in terms of trading volumes and replace them in trading pairs in the foreseeable future“, the letter states.

To overcome the potential problems the restrictions could cause for the crypto-currency industry, the lobbyists want the EU to consider the role that stable currencies referenced in dollars play in crypto-currency exchanges and DeFi and to clarify the definition of tokens used as a medium of exchange.

The European Commission first proposed MiCA in September 2020 and lawmakers approved it in June 2022. Next, the details must be finalized and the European Council and European Parliament must approve the decision before it is formally adopted.