JP Morgan says the EU’s MiCA regulations are likely to boost euro-denominated stablecoins

The crypto industry wanted regulation, and now they have it – with the EU’s MiCA. You would think this will be embraced at first glance. But No. The MiCA regulations have caused the crypto industry sleepless nights. However, they have their benefits. 

According to JPMorgan (JPM), the EU’s MiCA regulations, which were implemented on Dec. 30, 2024, are expected to increase the demand for euro-denominated stablecoins.

Presently, euro-pegged stablecoins account for only 0.12% of the stablecoin market share. However, MiCA has the potential to grow this figure by promoting European banks and financial institutions’ adoption of euro stablecoins for customer requirements and blockchain-based financial settlements.

JPM analysts led by Nikolaos Panigirtzoglou wrote, “Under MiCA, only compliant stablecoins can be used as trading pairs in regulated markets, prompting EU exchanges to adjust their offerings.” 

The analysts cited Societe Generale’s EURCV stablecoin and BBVA’s forthcoming stablecoin launch in partnership with Visa as notable examples.

MiCA’s impact on global stablecoins

The report noted that stablecoin issuers, such as Tether, are required to secure trading licenses within the EU and maintain substantial reserves in European institutions under the new regulations.

This has led to the strengthening of compliant stablecoins, such as Circle’s EURC. Non-compliant stablecoins, such as Tether’s EURT, have encountered difficulties. Already, Coinbase delisted Tether’s USDt, citing concerns about compliance with the EU’s MiCA regulations.

However, the bank stated that Tether continues to be a “dominant force” in the global stablecoin market despite the challenges it faces. It is also noted that tether is extensively used in Asian markets, where there are fewer restrictions.

The report further stated that Tether’s investment in stablecoin issuers that are MiCA-compliant, such as Quantoz Payments, demonstrates its dedication to sustaining a presence in the EU. Platforms like Binance and Crypto.com  chose to hold off on any action until the situation became clearer.

Notably, in December, the organization disclosed that it had also made an investment in StablR, a European stablecoin issuer. 

Generally, the analysts stated that MiCA’s long-term impact on the crypto market could be positive. This is because it could attract institutional investors and promote the adoption of euro-pegged stablecoins. 

Still, although it introduces higher compliance costs, the U.S. is likely to adopt its own crypto legislation under the incoming Donald Trump administration as the EU takes this regulatory leap.

MiCA regulations and their demand on the crypto industry

The first thing MICA regulations did was to kick out algorithmic stablecoins. Apparently, MiCA does not regard algorithmic stablecoins as asset-referenced tokens. This is because they lack explicit reserves that are associated with any conventional asset. 

This essentially implies that algorithmic stablecoins are prohibited under MiCA. The new regulations will necessitate that stablecoins are recognized by MiCA and be supported by a liquid reserve with a 1:1 ratio.

MiCA has stated that its explicit objective is to safeguard the financial stability and monetary sovereignty of the European market. As a result, the regulations regarding stablecoins, particularly those that pertain to variant issuers, are quite stringent.

Therefore, before listing or publicly offering their assets in the EU, individuals who intend to issue EMTs and ARTs must obtain authorization. The issuer must provide this authorization unless they expressly grant written consent to another party to do so.

Notably, MiCA does not employ the term “stablecoin;” both ARTs and EMTs are regarded as stablecoins.

After publishing a whitepaper and notifying their supervisory authority, authorized credit institutions may offer or list EMTs. EU-based ART issuers are subject to additional requirements, including the approval of their whitepaper before publication. 

More importantly, the European Banking Authority may classify them as “significant” based on specific criteria, which would subject them to more stringent regulatory policy and supervision. This is where the EU-based stablecoins will benefit.

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