Markets
Crypto market holds its breath as some stablecoins banned
Investors await the effects on international markets of European regulations
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Starting next month, some major digital currencies, such as Tether, will disappear from the European cryptocurrency market due to new European regulations. This change could significantly disrupt trading on European crypto exchanges.
Stablecoins are cryptocurrencies linked to a real currency, such as the US dollar, or to another cryptocurrency. The stablecoin is backed by this other currency, which results in less volatile prices. A well-known example is Tether (USDT), which is pegged to the dollar.
However, due to new EU capital and transparency requirements, most of these stablecoins will be banned.
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Tether, which currently holds 70% of its $160 billion market value, does not comply with the so-called MiCA (Markets in Crypto-Assets) regulation. The currency will disappear from the European Union next month and is already no longer tradable on several online trading platforms. Tether is still available on the largest exchange Kraken, but that exchange is also considering stopping trading.
The Tether ban will force European investors to look for other stablecoins when using crypto services outside of Europe. This could disrupt the liquidity and stability of the market, warns the analysis firm Steno Research. With the European market alone applying stricter rules, analysts fear this could isolate the EU.
The CEO of Tether does not see things getting better between his company and the European regulator, the European Banking Authority.
Currently, few stablecoins comply with the new EU rules. Binance, the world’s largest cryptocurrency exchange, and others are pinning their hopes on Circle’s USDC. This is the second largest dollar stablecoin, which may be able to take over the market. Circle also has a small stablecoin linked to the euro, EURC.
Societe Generale’s EUR CoinVertible, one of the few approved stablecoins, could also play a role, although it has not proven popular.
Tether itself does not take any further steps to comply with European rules. “Given the rules that significantly restrict access to cryptocurrencies in the EU, it is clear that Europe is not expecting this,” Paolo Ardoino, CEO of Tether, said in an earlier interview.
In doing so, Ardoino primarily comes up against capital and coverage requirements imposed by the EU. Around 60% of Tether monetary transactions must be banked by the EU, in order to provide guarantees for investors. This is not the case and Tether primarily invests in corporate bonds and other cryptocurrencies. It earns decent interest income for Tether, but is therefore risky for investors.