The EU’s looming crypto regulations are raising alarms about potential disruptions to market liquidity as exchanges prepare to meet new requirements under the Markets in Cryptoassets (MiCA) framework, Bloomberg News reported on December 20.
The rules, which will come into full effect on December 30, will mandate the listing of Tether’s USDT, the world’s most widely used stablecoin, from EU-regulated platforms.
MiCA aims to increase transparency and discourage illicit financial activities by requiring stablecoin issuers to secure e-money licenses, maintain significant reserves and monitor payment-related transactions.
However, Tether Limited has not yet obtained such a license, leading to its removal from crypto exchanges operating in the EU.
Liquidity problems on the horizon
USDT’s dominant role in crypto trading pairs has made it a cornerstone of global liquidity. The stablecoin’s absence from the EU market is expected to disrupt trading activity and increase costs for investors who rely on it to move money efficiently.
According to Pascal St-Jean, CEO of 3iQ Corp:
“A large portion of crypto assets are traded against Tether’s USDT. Forcing investors to switch to other stablecoins or fiat currencies introduces inefficiencies and increases transaction costs.”
Exchanges such as OKX, which delisted USDT in Europe earlier this year, reported a shift towards fiat trading pairs among users. Despite this adjustment, market participants remain concerned about reduced liquidity and the potential fragmentation of trading activities.
The EU’s strict regulatory stance comes at a time of rising optimism in the US, where newly-elected President Donald Trump’s pro-crypto policies have boosted the market.
While MiCA is designed to increase transparency and curb illegal activity, critics argue it risks pushing traders and liquidity providers into less restrictive jurisdictions. Analysts warn that Europe’s efforts to tighten controls could undermine competitiveness in the global crypto market.
Mixed signals
Despite the challenges, the European Central Bank recently reported a doubling of crypto ownership in the Eurozone since 2022, with 9% of the population now owning digital assets.
However, venture capital investments in European crypto startups have declined, reaching their lowest level in four years. This trend highlights broader concerns about the region’s ability to attract innovation and investment under stricter regulatory frameworks.
While the regulations aim to ensure greater market stability and transparency, their immediate impact on liquidity and investor confidence could test the bloc’s ability to maintain competitiveness in the rapidly evolving digital asset ecosystem.