The regulation not only protects investors by mandating transparency and accountability for providers of such assets, but also shields the market against improper use
In the space of just a decade, digital assets have gone from being a technological curiosity to a global phenomenon. Today, more than 617 million people use cryptocurrencies, a market worth more than $2.3 trillion, according to The Crypto Wealth Report 2024 published by the consultancy firm Henley & Partners, which represents an increase of 95% compared to the previous year.
As a result of its development in a virtual environment without physical boundaries, the world of digital assets has expanded and fragmented, transforming the financial industry at an accelerating speed that is not without its challenges: volatility, cybersecurity risks and regulation that, until now, has left many users navigating uncertain waters. This challenging context has also kept many governments and entities on hold, patiently postponing their forays into this market until an appropriate regulatory structure was in place. The future, however, is beginning to unfold with greater clarity and Europe is making firm progress with the entry into force of the MiCA (Markets in Crypto-Assets) Regulation this January, a regulation that is set to change the current rules of the game to ensure greater legal certainty, control and transparency in the crypto-assets market, as well as to offer services across borders throughout the European Union.
The decentralised nature of digital assets means that this regulation is not something trivial. This regulatory framework represents a paradigm shift that establishes guidelines for managing, trading, issuing and holding crypto-assets. At the same time, it aims to lay the foundations for ensuring the privacy and protection of users. Under the premise of bringing order to a bubbling market and creating a fair operating scenario for all crypto-asset service providers, an ecosystem is created in which security, transparency, trust, innovation and competitiveness must prevail.
Thus, MiCA not only protects investors by mandating transparency and accountability for providers of such assets, but also shields the market against improper use. By standardising requirements for the trading and custodianship of assets, requiring mandatory registration as a provider and authorisation to operate in the EU under the supervision of national and European authorities, the regulation promotes market stability and reduces systemic risks.
Far from limiting the expansion of this market, MiCA offers a decisive response and sets forth the requirements to protect investors and encourage the development of a fertile ground for innovation, where companies can create and experiment without fear of breaching ambiguous regulations or facing hostile environments. At the same time, it does not limit service providers from operating across national borders, laying the groundwork for the construction of a single market for crypto-assets.
However, the road ahead is double-edged. Blockchain technology, the mainstay of this ecosystem, offers unprecedented transparency in transactions, but also poses new challenges in terms of technological and security risks. Bringing digital assets into a regulated environment not only changes the rules of financial markets, but also redefines their infrastructure.
Tokenisation, for example, allows financial assets representing physical goods - such as real estate or works of art - to be converted into digital representations tradeable on blockchain. European banks and fund managers are already marketing tokenised money market funds that promise greater liquidity, efficiency, traceability and cost reduction.
Tokenisation has revolutionised the way assets are represented, digitalising everything from real estate to works of art on blockchain. This innovation has transformed financial markets, generating new digital assets from traditional instruments such as bonds and equities. Thanks to greater liquidity, efficiency and traceability, tokenised money market funds are attracting the interest of European banks and fund managers, who are looking to reduce costs and offer more attractive products to their customers.
Faced with this new financial asset infrastructure, the MiCA Regulation also establishes guidelines for the provision of services covering the administration, execution and custodianship of assets. Custodian banks, specialised in traditional custodianship, have seen the need to take on the considerable challenge of adapting to the new regulations of the crypto world in order to offer digital asset custody services in compliance with all the prevailing regulatory standards. With an extensive background in the traditional industry, entities such as Cecabank play a crucial role in the new paradigm of digital assets, providing trust, knowledge, security and technical capabilities to ensure regulatory compliance, risk reduction and security in operations involving digital assets.
As a benchmark custodian bank, since 2019 we have been working on a strategic line that explores the potential of digital assets, under the premise of offering a comprehensive service to institutional customers, including the custody of cryptocurrencies and an execution and settlement system (RTO) through approved exchanges. In this regard, Cecabank has been registered with the Bank of Spain since 19 December 2024 as a provider of services for the exchange of virtual currency for fiat currency and the custody of electronic wallets.
In addition to this, we have established alliances with specialised partners, such as Bit2Me and Fireblocks, to develop a solid and secure technological infrastructure, and we have a strong commitment to innovation. At the same time, we have also participated in sandbox initiatives with the CNMV, with GPT Advisor and STX, and in experiments with the European Central Bank and the Bank of Spain for wholesale tokenisation.
The MiCA compass points north and puts Europe at the forefront of crypto-asset industry regulation, but the constant and inherent transformation of the sector signals that the road is still to be built. The unstoppable development of blockchain technology and the popularisation of different crypto-assets require cooperation, prudence and strategic alliances, key levers to offer innovative, secure and quality services in the crypto world, on a par with what we offer in the traditional market.
Aurora Cuadros is Corporate Director of Securities Services at Cecabank.
