By approving a ground-breaking set of regulations for the industry, the EU has taken steps to control the “wild west” of cryptocurrency assets.

On Thursday, representatives from the European Parliament and EU member states hammered out a deal that includes safeguards against market abuse and manipulation as well as a requirement that cryptocurrency companies provide information about the environmental impact of their holdings.

Stefan Berger, the German MEP who oversaw negotiations on behalf of the parliament, declared that “today we placed an order in the wild west of crypto assets and set clear regulations for a harmonized market.”

Referring to the current decline in cryptocurrency prices, the market’s overall size has decreased from $3 trillion (£2.5 trillion) in 2017 to less than $900 billion. The recent decline in the value of digital currencies, according to Berger, “shows us how very hazardous and speculative they are and that it is vital to respond.”

Around the end of 2023, the markets in crypto assets (MiCA) law is anticipated to take effect. Cryptocurrency assets are generally uncontrolled on a global scale, and national operators in the EU are merely needed to demonstrate safeguards to prevent money laundering. The MiCA law is anticipated to serve as a benchmark for other regulatory frameworks for cryptocurrencies around the world.

The word “cryptocurrency” refers to a collection of digital assets that have the same fundamental design as bitcoin: a publicly accessible “blockchain” that keeps ownership records decentralized from any central authority.

Supporters of the industry claim that it is a wise investment because it has cheap fees and is unrelated to governments, unlike traditional currencies. However, its critics claim that because bitcoin and cryptocurrency have autonomous beginnings, they are vulnerable to fraud and irrational price swings due to a lack of regulatory control or implicit government endorsement.

Ernest Urtasun, a Green party MEP, continued, “MiCA will be the first complete framework for crypto assets in the world and will feature strong measures to defend against market misuse and manipulation.”

The new law grants “passports” to cryptocurrency asset issuers and service providers, allowing them to serve customers throughout the EU while adhering to capital and consumer protection regulations.

On Thursday, discussions in the EU centered on topics including crypto-asset regulation and energy use. In the future, crypto-asset suppliers will have to publish their assets’ energy usage and environmental impact, according to Berger.

Although regulators in both the UK and the US, two key crypto centers, have cautioned about the need for additional safeguards in the sector, identical measures have not yet been approved in both nations.

Following the collapse of TerraUSD and luna tokens last month, the value of cryptocurrencies was put under pressure, and the major US cryptocurrency lending institution Celsius Network froze withdrawals and transfers. The industry, however, has shown to be subject to broader economic forces.

These include stock market drops resulting from rising inflation and subsequent central bank interest rate rises. Raising rates, which the US, UK, and Swiss central banks did last month, can reduce the appeal of riskier investments. For instance, some technology companies may be less tempting than fixed returns offered immediately by assets like bonds, which become more alluring in an environment with higher loan rates, given that their valuation may be based on predictions of significant future revenues over many decades.

The regulatory advancement happened at the same time as India’s central bank declared cryptocurrencies to be “make-believe” systems. According to the bank’s most recent assessment on financial stability, cryptocurrencies are nothing more than “sophisticated speculation.”

Shaktikanta Das, governor of the bank, stated in a letter: “Cryptocurrencies represent a clear hazard. Anything that draws value from fiction, without any underlying [value], is nothing more than speculative activity with a fancy name. While technology has helped the financial industry expand and its advantages must be fully realized, it also carries the risk of upsetting the financial system’s stability. Cyber hazards are developing as the financial system becomes more digitalized and require specific attention.”