Ludwig Von Mises in its book titled «The Theory of Money and Credit» mention that «the State has not the power of directly making anything into money, into a common medium of exchange. It is only the practice of the individuals who take part in business that can make a commodity into a medium of exchange».
Lately, the world of cryptocurrencies has been in the spotlight. The total capitalization of cryptocurrencies from $800billion at the beginning of 2021 approached the size of $1.5trillion at the beginning of June.
Cryptocurrencies are based on blockchain technology (please read the analyses entitled “Blockchain Technology Completely Removes the Intermediary’s Position in One Transaction” & “Blockchain and STO’s in EU“). Blockchain technology enabled secure transactions (peer-to-peer. At the same time, it made it possible to create decentralized finance with its respective applications.
by Trust Economics-https://trusteconomics.eu
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The Regulatory Framework and Its General Principles
The lack of a regulatory framework leaves the user / investor in various types of risks, such as the loss of funds from fraud. In addition, there is the technological risk of invading the programming code from malicious attacks on the network with loss of assets.
Writing a regulatory framework is difficult because most cryptocurrencies are not financial securities (e.g., stocks / bonds) that do not give the holder ownership rights or even access to cash flows. Bitcoin e.g., can only be used for value transfer, while ripple gives access to various kinds of utilities. The European Commission’s recent proposal for a regulation on Markets in Crypto Assets-MICA sets out what to expect.
The General Principles of the Regulatory Framework are:
1.The ECB does not recognize cryptocurrencies as currency. For the ECB, cryptocurrencies are cryptocurrencies, i.e., they resemble high-risk investment instruments, and do not have currency characteristics.
2. The check and adjustment point are the one that is used to buy currency e.g., Bitcoin and is controlled now when bitcoin is converted into currency. If someone buys a crypto currency, he will either stay in it or the identity of the one who converts e.g., bitcoin in euros. However, this regulation can create a black market for redemption of cryptocurrencies.
3. A definition must be given for
a. crypto asset
b. digital money
c. electronic coin
d. electronic wallet
e. stable cryptocurrency (stable coin). It links its price to a fixed value such as currency or commodity. The Commission could recognize stable coins as a category of digital money because it is tied to a value.
4. To place crypto assets under the supervision of the member-country Capital Market Commission and the European Capital Market Commission (ESMA) as investment instruments.
5. Common rules on definitions, definition of performance requirements and cryptocurrency issuers, trading platforms, etc.
6. Cooperation of the supervision with law enforcement authorities such as those against organized financial crime, money laundering.
7. Authorization from regulated markets, Central Banks, or commercial banks to issue and trade supervised cryptocurrencies or crypto assets.
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What is and what is not currency?
A currency should cumulatively meet the characteristics of the unit of account, the value, the medium of value storage and be widely accepted as a medium of exchange by recognized entities, such as states, government, central banks, and regulated markets.
The recent recognition of Bitcoin as a medium of exchange by the Government of El Salvador, an awkward moment for the Central Banks worldwide. Because the recognition of an instrument as a currency by a state gives another feature that Bitcoin must have to be called a currency.
The ECB views cryptocurrencies as investment rather than currency. Forms of high-risk investments due to the huge fluctuations of their prices without supervision.
