Terms such as Cryptos, ledgers, Blockchains, Tokens, Wallets, Private and Public Keys, Mining, Decentralized Finance (DeFi), Initial Coin Offerings (ICOs), Stablecoins, Whales, Decentralized or Centralized Exchanges, and many other "intriguingly" unfamiliar terms were once only familiar to a select few, who believed that the digital world represented the future of financial transactions.
These terms have since gained wider recognition among a broader circle of investors, who sought attractive returns during a period when traditional financial markets and investment assets were under pressure from various challenges.
In recent years, the cryptocurrency market has dominated the attention of international investors – both institutional and non-institutional – and the broader investment community for a variety of reasons, with investment profitability being a major factor. It is worth noting that in mid-2016, Bitcoin was valued at approximately €400, whereas it has now surpassed €100,000, delivering a return of about 25,000% in less than a decade. However, as returns increase, so does the risk taken by the investor. And as we move further from regulated traditional financial markets, the forms of risk that arise multiply.
The argument surrounding the unregulated digital market has been a central issue in recent years among institutional bodies, central banks, investment and commercial banks in the EU, the US, and other countries, with many of these entities experimenting with shadow digital currencies and pilot projects to assess their responses to the evolving digital competitiveness within their service sectors.
The European Response: Regulation (EU) 2023/1114
Recently, the European Union adopted Regulation (EU) 2023/1114, which establishes uniform rules for cryptocurrency issuers and service providers in the EU, addressing critical issues such as transparency, licensing, supervision, protection of cryptocurrency holders, and the prevention of market abuse. The regulation distinguishes three main types of cryptocurrencies: electronic money tokens, asset-linked tokens, and other cryptocurrencies.Issuers and service providers are required to publish a White Paper, adhere to strict rules regarding integrity, conflict of interest management, and be responsible for the accuracy of information. Specifically, for token issuers, the regulation sets stringent requirements for licensing, redemption, and the protection of holders' interests. The European Banking Authority and other supervisory authorities will oversee the implementation, with the rules set to take effect on December 30, 2024, with some provisions already being enforced from June 2024. The regulation also incorporates transparency rules for markets through the European Single Access Point (ESAP), while amending other EU legislative acts.
The American Initiative: Executive Order by Trump
On the other side of the Atlantic, on the first day of his second term, President Trump signed a new executive order titled “Strengthening American Leadership in Digital Financial Technology,” aimed at bolstering the development of the digital asset industry in the United States. This executive order underscores Trump’s commitment to fulfilling the campaign promise to make the US the "cryptocurrency capital of the world."The main policy actions include protecting and promoting citizens' ability to use digital assets and develop underlying blockchain technology without persecution, safeguarding the dominance of the US dollar by supporting the global development of dollar-backed stablecoins, and protecting citizens from the risks associated with central bank digital currencies. The executive order stands in contrast to actions taken by the previous administration, which the industry saw as an attack on its ability to operate within the United States, notably due to “Operation Chokepoint 2.0.”
Furthermore, Trump called for the establishment of the "President’s Working Group on Digital Asset Markets" to assess regulations affecting the digital asset industry. This group will work towards the creation of clear and transparent regulations for digital assets, with particular attention to the US Treasury, the Department of Justice, and the Securities and Exchange Commission (SEC). Additionally, the group will explore the possibility of establishing and managing a "national reserve of digital assets," which would be derived from cryptocurrencies that have been lawfully seized by the US government through law enforcement efforts.
According to market experts, this executive order is a strong signal that cryptocurrency policy in the US is being upgraded to a national priority, creating a pathway for its development within the country. On the other hand, the EU appears to be safeguarding its strong regulatory superiority, focusing on a bureaucratic approach aimed at regulating an ever-evolving and expanding market, driven by technological progress. The future of the global cryptocurrency market and the operation of decentralized financial markets remains uncertain, with the ultimate outcome depending on political decisions and the adaptability of governments to emerging developments.
