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Crypto firms fear that a new way to sell digital assets such as artwork, music, memes – and even tweets – will soon be weighed down by old Brussels bureaucracy.
European lawmakers are debating whether they should incorporate the market for so-called NFTs – non-fungible tokens – into a proposed European law that will regulate crypto assets and the companies that manage them, dubbed MiCA. Legislation initially shunned such online collectibles. Not anymore.
Lawmakers are determined to stop scam artists and money launderers from abusing the unregulated industry, which has caught the attention of tax authorities in Australia, Canada, the Netherlands, the UK and from the United States now that it has become a popular way to buy and sell things. like a digital work of art. A major NFT marketplace called OpenSea, for example, is facing multiple lawsuits in the US amid claims of stolen and plagiarized digital art, while prosecutors in New York recently charged a former employee with misdemeanor misdemeanor charges. initiated.
The challenge is that the crypto market has evolved at breakneck speed since the European Commission proposed almost two years ago to the MiCA to grant investors guarantees similar to those of the financial sector. Lawmakers are therefore determined to act amid fears that NFTs will be left unchecked in Europe, leaving crypto companies to use the sector to circumvent MiCA altogether. Inaction is not an option and lawmakers hope to reach an agreement on the matter as early as next week.
The crypto lobby, however, fears that lawmakers in Brussels are going too far in trying to keep up with crypto technology. He says that stuffing NFTs into MiCA is wrong because these assets are not financial in nature. They are aimed more at artists, musicians and video gamers.
The risk is that they fear the EU is burying artistic types under paperwork and market-unfit customer checks, and they warn that a heavy-handed approach could stifle the European NFT market, which is still in its infancy. .
“The use cases for NFT are just beginning. A big one right now is art. Art that goes from physical to digital is fundamentally no different from art that goes from cave walls to canvas. We don’t regulate art like stocks, and we shouldn’t regulate the sale of digital art like the sale of crypto assets,” said Seth Hertlein, vice president and global head of policy at Ledger, a company that offers a USB key. digital wallet allowing people to hold crypto assets and NFTs outside of exchanges.
monkeys and birds
NFTs made headlines after celebrities spent hundreds of thousands of dollars on one-of-a-kind digital artworks, such as Bored Ape Yacht Club and Moonbirds. These collectibles exploded in popularity last year, but have since been tempered by the general downturn in the crypto market. The NFT sector is now valued at around $12 billion.
NFTs have broader applications than line art. Musicians can sell their songs as NFTs, for example, as an alternative source of income. Investors also buy digital stakes in physical art or real estate. On a smaller scale, movie theaters can issue movie tickets as NFTs, while video gamers can use the technology to purchase props for their virtual characters.
This deal will be up for further scrutiny on June 30, when Commission officials, MEPs and Council representatives from EU capitals are due to meet to try to conclude legislative negotiations on the MiCA. . There is always a chance that the talks will need more time, given the ongoing divisions, including over NFTs.
The Commission has taken a tougher stance, fearing investors could be harmed by NFT sales that are worth far less than headline-grabbing deals.
“Left unregulated, NFT markets will remain subject to serious risks of market manipulation such as sham trading and insider trading,” Commission officials explained to Council and Parliament lawmakers in a confidential note, obtained by POLITICO, before next week’s meeting.
Find a compromise
The Commission is determined to ensure that the legislation covers businesses that allow the trading or custody of NFTs, while leaving artists and businesses free to create and manage their own NFTs without the regulatory burden. Many MEPs are also in favor of this approach.
But the Council is not convinced. According to her, the MiCA should target large online auction houses like OpenSea or video game platforms that fall below certain thresholds, such as average monthly trading, according to a separate document that the Council has prepared to try to reach a compromise.
This approach seems to have won over some within the crypto industry, although they would still prefer a separate set of rules outside of MiCA.
“Tackling NFTs as purely financial instruments completely misses the innovation they can bring to Europe,” said Robert Kopitsch, Secretary General of Blockchain for Europe. “The goal for regulators should have been to develop a bespoke regime for NFTs that examines their variety and addresses the specific risks that each different use case might entail.”