Is Europe falling behind in crypto adoption and the development of the digital asset future of finance? It is difficult to argue that Europe is leading the race.
While the European Union was quick to enact rules under the Markets in Crypto Assets regulation (MiCA), member-state fragmentation, bureaucratic drift, and the relatively agile US have put the EU in a position it would rather not be in.
Recently, European Central Bank President Christine Lagarde expressed her dim view of stablecoins, favoring more centralized control through a central bank-controlled digital Euro or a Central Bank Digital Currency (CBDC). The US has embraced “payment stablecoins,” as outlined in the GENIUS Act, as a path to bolster dollar dominance while fueling purchases of US Treasuries, which is good for the country. A CBDC issued by the US Federal Reserve has been shelved largely due to overwhelming privacy concerns and too much centralized control, in contrast to the EU. The advent of the Trump Administration has boosted digital asset innovation in the US, in contrast to the Biden Administration’s unfortunate policy of undermining the Fintech sector, including crypto.
While the EU would prefer driving global policy on digital assets, at the moment, it appears to be the United States that defines the future of crypto, if they get it right. Currently, the CLARITY Act is working its way through the legislative process, and if the US Senate approves the bill, it will define crypto market infrastructure and regulatory status in the United States.
Recently, CI connected with Dea Markova, policy director at Fireblocks, to hear her opinion on the developing digital asset ecosystem. Fireblocks is a global, institutional digital asset company that provides enterprise-level infrastructure, including custody, transfers, tokenization, and more. Fireblocks is viewed as a “gold standard” for custody and partners with many large financial institutions. Our discussion with Markova is shared below.
Is Europe falling behind in the global race to fuel digital asset innovation?
Dea Markova: Industry leaders make that comment from time to time, but I think it reflects policy signaling for the future rather than commercial or regulatory reality today.
What do I mean by this? The EU market connects 450 million people in a single market, and with the volume of internal and external trade combined, makes it the largest trading block globally. These are all financial flows gradually coming on-chain. The sheer size and sophistication of the EU market, combined with the regulatory clarity of MiCA, means the market is not quite yet falling behind.
However, the policy signaling is substantially less pro-market growth than in the US, in parts of the Middle East, or in the APAC financial centers. The regulators there are quickly surpassing MiCA in the detail to which they are engaged with innovative technologies, and the rules they are clarifying to make sure these technologies are not encumbered by rules written for a different era in technology. To give you just one example, the SEC recently gave more supportive clarity on the use of non-custodial technology in the orchestration of on-chain investment than any EU regulator has under MiCA or MiFID.
Another example – the SEC is actively packaging an “innovation exemption”, while the EU developed a DLT Pilot Regime for the same use cases, which is in desperate need of revision, but this revision is not being expedited.
So, has the EU fallen behind? Not yet. But does it risk becoming an innovation flyover zone rapidly? Yes, it does.
Especially because US and MENA regulators are exercising a regulatory muscle that will be really important when agentic payments and transactions scale in the near future.
Europe (the EU) is frequently criticized for its tendency to over-regulate. Is this the case?
Dea Markova: I do think that the present-day policy approach in the EU is rather cautious. One reason is that MiCA was written at a time when many fewer rulebooks existed in the US and elsewhere in the world. Thus, the EU became the only country that requires foreign stablecoin issuers to get a license and localize reserves under domestic law. We are now realizing this rule has some severe shortcomings, and other risk-management techniques are better for the end-consumer.
What does Europe need to change to inventivize digital asset innovation?
Dea Markova: This is a very broad question, and the answer depends on whether you are thinking of innovation in payments, or in capital markets, innovation around crypto intermediation, or around traditional financial instruments.
Overall, Europe needs to find a better way to align its consumer protection and competitiveness agendas. At the moment, the commitment to competitiveness, which we observe in policy changes, seems to be in name only.
How is the real-world approval going for firms regulated under MiCA? Are we seeing regulatory fragmentation by member states?
Dea Markova: We are two months away from the final MiCA deadline – by then, all brokers and exchanges in all Member States will need to have gotten a license, or to start making plans to exit the market. Many small players will not survive this change, but the market will become more stable. Institutions are entering in large numbers. In some markets, e.g., in France, there are as many MiCA licenses given out to crypto-native firms as there are to banks.
Sure, the implementation process has exposed areas where interpretation gaps are large or potentially misaligned with the spirit of the main text. These are areas that should be addressed under MiCA 2, which is already being worked on.
But the main difference between Member States we see is whether the domestic regulator is well organized and well resourced, or not. We have excellent impressions from Germany or the Netherlands, for example. It’s interesting to think about that in the context of the single-supervisor discussions underway.
What about stablecoins vs CBDCs? And what about stablecoin yield and the discussion in Europe?
Dea Markova: Very broad topics, and I am not sure what the question is.
Stablecoins vs CBDCs: In the eurozone, in retail payments, the Digital Euro is still being looked at by banks and by merchants with questions on use case, on cost, and on privacy. In wholesale markets, we are supportive of both the tokenized wholesale Digital Euro project and of the idea of allowing stablecoins to be used as a settlement asset.
We see more demand for yield by banks, defined as giving clients access to lending strategies via DeFi. Yield, defined as offering interest rates on stablecoins, is not a European discussion.
Why are the next 12 months so important for Europe and digital asset development?
Dea Markova: Any 12 month-period in the past 5-6 years has brought a new game changer for digital assets markets. Start in the pandemic bull market, then the changes in the US administration, then the rise of stablecoins, or indeed the implementation of MiCA.
Over the next 12 months, the EU will first define the changes that will go into MiCA 2. That’s crucial. It also has to resuscitate its DLT Pilot Regime or find another way to promote tokenization on the single market. By this time next year, we will all be talking about securing agentic payments.
Is this an example of what the Draghi Report warned?
Dea Markova: Draghi, in his report and statements around it, warned that if Europe does not take competitiveness seriously, it faces “slow agony” rather than sudden death. Europe does need to address its cautious signaling around digital assets if it hopes that its financial services champions dominate the on-chain space globally. We see that ambition from the market. We see it far less clearly from policymakers.