Crypto: The MiCA regulation could trigger a banking crisis in Europe!

Europe positions itself as a global leader in crypto regulation, with the recent adoption of the MiCA regulation. However, behind this ambitious project lies a worrying paradox: this legislative framework, intended to stabilize the market, could actually weaken the very foundations of the banking system. This is the warning issued by Paolo Ardoino, CEO of Tether, who sees in these new rules a threat not only to stablecoin issuers but also to the entire European financial institutions.

The Concerns of Tether’s CEO: An Imminent Systemic Risk

Paolo Ardoino, CEO of Tether, has expressed serious concerns about the potential repercussions of the MiCA regulation, recently adopted by the European Union. In an exclusive interview, he stressed that rather than enhancing the security of the crypto market, this legislation could instead exacerbate the vulnerabilities of the banking system. According to Ardoino, the requirement for stablecoin issuers to hold 60% of their reserves in European banks creates a major risk. He notes that these financial institutions, operating on a fractional reserve system, are inherently exposed to bank run risks, a danger amplified by the requirements imposed by MiCA.

Ardoino also highlighted a critical shortcoming of the regulation: the deposit guarantee limit of 100,000 dollars within the European Union. For entities the size of Tether, this protection is negligible and could prove disastrous in the event of a crisis.

A Warning: The Case of Silicon Valley Bank

Paolo Ardoino refers to concrete events, including the collapse of Silicon Valley Bank in 2023, to illustrate the real dangers that this new legislation could create. The failure of this bank, which held significant reserves of USD Coin, not only triggered a bank run but also caused the stablecoin to depeg, creating a shockwave across the entire crypto market. Ardoino warns that the crypto market regulation could replicate this scenario in Europe, as it imposes conditions on stablecoin issuers that directly expose them to the frailties of the banking system.

For Ardoino, the situation is clear: by forcing stablecoins to depend more on European banking institutions, MiCA could create a similar, if not more destructive, chain reaction in the event of the failure of a European bank. According to him, the crypto market regulation, though driven by a commendable intention, does not sufficiently take into account the lessons learned from recent financial crises, thus exposing the European financial system to unprecedented potential risks.

Before moving forward, it is imperative that European regulators re-evaluate the implications of these new rules, to ensure that they indeed enhance the resilience of the financial system, rather than increase its fragility.