ECB Publishes New Guideline on Regulated Digital Asset Licensing

The European Central Bank (ECB) has issued new licensing guidelines for regulating digital assets, although it currently does not have a unified regulatory framework governing crypto-asset activities and services.

ECB stands for European Central Bank, the central bank of the 19 European Union countries that have adopted the Euro.

The ECB’s banking regulator noted that the ECB is taking steps to harmonize its assessment of licensing applications as “national frameworks governing crypto-assets vary widely.”

The Presidency of the Council and the European Parliament recently reached an interim agreement on the proposals of Markets in Crypto Assets (MiCA).

The agreement requires crypto assets to be placed under a regulatory framework. It uses the Capital Requirements Directive criteria, which has been in effect since 2013, to evaluate licensing applications for crypto-related activities and services.

The ECB proposes that the AML/CFT risk profile will be analyzed as several characteristics of crypto assets, such as their lack of intrinsic economic value or reference assets, make them vulnerable to money laundering.

The report states that crypto companies will be assessed accordingly for their licensing from their business models, internal governance and “fit and proper”.

Due to unique characteristics of crypto assets, such as programmability, the ECB report details that:

“The higher the complexity or relevance of the crypto business, the higher the level of knowledge and experience in the field of crypto should be. Senior managers or board members with relevant IT knowledge and chief risk officers with robust experience in this area are important safeguards.”

Overall, the publication is evidence of how the ECB, among global regulators, aims to present its regulatory activities related to the crypto ecosystem. With the Markets in Crypto Assets (MiCA) Act under active consideration, many believe this year will mark a major shift in European crypto regulation.

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European Central Bank Hikes Interest Rates in Surprise Move, Bitcoin Remains Steady

The European Central Bank (ECB) on Thursday raised interest rates by 50 basis points (0.5 percentage points) and therefore brought its deposit rates back to zero from -0.5%. The hike was a surprise move as economists had anticipated a smaller hike of 25 basis points.

The ECB, the central bank of the 19 nations that share the euro currency, increased interest rates for the first time in 11 years, ending the six-year era of the negative interest rate policy (NIRP). Now, the ECB’s deposit rate is at 0%, the main refinancing operations rate stands at 0.5%, and the marginal lending facility is 0.75%.

The ECB signalled more rate hikes ahead as part of efforts to control rampant inflation in the eurozone. The Frankfurt-based central bank’s inflation target is 2%. In June, inflation stood at a record high of 8.6%.

In a statement on Thursday, the ECB said the hike is part of longstanding efforts to prevent inflation from spreading more broadly to European goods and services, “The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalization path than signalled at its previous meeting.”

The central banker further mentioned that the hike “will support the return of inflation to the Governing Council’s medium-term target by strengthening the anchoring of inflation expectations and by ensuring that demand conditions adjust to deliver its inflation target in the medium term.”

ECB President Christine Lagarde justified the larger hike: “Inflation continues to be undesirably high and is expected to remain above our target for some time. The latest data indicate a slowdown in growth, clouding the outlook for the second half of 2022 and beyond.”

In the past, The ECB had signalled it would be raising rates in July and September as consumer prices continue soaring. But it was unclear how the central bank would initiate the move.

Since 2014, the central bank has kept rates at historic lows in negative territory as it dealt with the region’s sovereign debt crisis and the COVID-19 pandemic.

The ECB’s rate hike comes one month after the U.S. Federal Reserve (Fed) lifted interest rates by 0.75 percentage points, the third hike this year and the largest one since 1994. The Fed’s move aims to tame the fastest inflation pace in over 40 years.

Since the ECB announced a bigger-than-expected interest rate rise at 12:15 UTC (Coordinated Universal Time), Bitcoin, the flagship cryptocurrency, has held its price steady at around $22,700. Bitcoin is currently trading at $23,125.74 at the time of writing at 20:29 EAT (Eastern Africa Time). The euro (EUR), the official currency of 19 member states of the European Union, rose 0.7% relative to the U.S. dollar from $1.0198 to $1.0257.

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On-Chain Analyst Willy Woo Says Bitcoin (BTC) Could Become a $20 Trillion Asset Class – But There’s a Catch

On-chain analyst Willy Woo says Bitcoin (BTC) could increase its market cap by more than 20 times from current levels in the next decade.

In a new interview, the on-chain analyst says that Bitcoin could reach a market cap of nearly $20 trillion within 10 to 20 years.

“I think it [Bitcoin’s market cap] will be more. Maybe close to $20 trillion.”

Bitcoin is trading for $43,936 at time of writing while the flagship cryptocurrency’s market cap stands at slightly over $830 billion.

Woo says that whether Bitcoin realizes a multi-trillion market cap will be determined by how the regulatory landscape pans out.

“I think a lot’s got to do with how this plays out within regulation. A lot of unknowns right now.”

According to Woo, authorities in places such as Europe are impacting Bitcoin negatively by triggering fear, uncertainty and doubt (FUD).

“The central bankers, particularly in Europe, are dooming Bitcoin and there’s a lot of FUD right now. I think how that resolves matters.”

In 2021, the president of the European Central Bank, Christine Lagarde, branded Bitcoin a “highly speculative asset” used to conduct “funny business” and called for global cooperation aimed at regulating the flagship cryptocurrency.

Last month, vice-chair of the European Securities and Markets Authority Erik Thedeen called for the banning of Bitcoin mining in the Europe Union bloc.

The on-chain analyst also says that Bitcoin could end up failing to realize its full potential.

“There is a fair chance that it [Bitcoin] will be relegated to a ‘good try’ and will be a $1 trillion sort of exotic asset class and not something that’s major.”

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EU finance chief says digital euro bill coming in early 2023

The European Commission has announced that a bill for a digital euro will be proposed in 2023.

As first reported by Politico, EC finance chief Mairead McGuinness officially disclosed the EU’s formal consideration of digital euro legislation at a fintech conference on Wednesday.

“Our goal is to table legislation in early 2023,” the Commissioner for Financial Service said. “A targeted legislative consultation in the coming weeks.”

The European Central Bank (ECB) is already experimenting with designs and systems for a digital euro, with a prototype expected sometime in late-2023. If a digital euro is to be implemented, it will require the seal of approval from Eurozone governors. If they give the green light, then the digital euro could be ready for issuance by 2025.

The digital euro is a central bank digital currency (CBDC) — a financial instrument that central banks around the world are exploring very seriously. The increased interest in CBDC’s has emerged from growing concerns that domestic currencies will eventually be undermined by the growing popularity of cryptocurrencies.

“If we don’t satisfy this demand, then others will do it,” ECB Executive Board member Fabio Panetta said in mid-November, pushing for the implementation of a digital euro.

Last year, the ECB conducted research and published a report on digital currencies. It found that a digital euro may help lower interest rates, speed up transaction processes and decrease cash use.

Irrespective of the reported benefits, central bankers face an uphill battle to win over the public. Research conducted by the UK economic affairs committee and Germany’s central bank shows that the majority of respondents oppose government-backed digital currencies citing skepticism of benefits and fears of government snooping.

Related: IMF recommends CBDC and global crypto standards for financial stability

But official interest in CBDCs around the world has taken off with Kenya’s central bank recently seeking public input around a digital shilling, while Thailand has already begun implementing regulation for a future retail CBDC. The Central Bank of the Bahamas was one of the first to roll out a CBDC, the Sand Dollar in October 2020.

China however, maintains the first-mover advantage in the world of digital currency. The country has outstripped the international community with continued and significant leaps forward in the CBDC space.