Increasing numbers of providers advertise products or services related to crypto assets. However, not all of them are regulated, and you do not enjoy protection across the board that the European Markets in Crypto-Assets Regulation (MiCAR) provides. MiCAR regulates certain offerings, but others remain unregulated – with significant risks for consumers.
What does “MiCAR regulated” mean?
It means that a crypto service provider is subject to MiCAR’s harmonised European legal framework. The provider is required to apply for an authorisation from the competent supervisory authority, to fulfil transparency obligations, and to observe standards relating to its capital base, IT security and risk management. In addition, MiCAR also addresses the protection of customers. Undertakings are required to observe information requirements and take measures against conflicts of interest. The rules apply EU-wide, meaning that comparable standards apply in all EU Member States.
There are three MiCAR-regulated asset categories:
These are crypto-tokens, the value of which is referenced against one or more assets, e.g. a currency, commodities (such as gold) or other tokens.
Example: a token that is always worth as must as a basket of Euro, US dollars and gold.
Objective: a stable value – similar to the case of Stablecoins, but not only tied to an official currency.
These are tokens that are tied 1:1 to an official currency such as the Euro.
Example: a token that is also worth exactly € 1. Similar to a digital euro or a digital wallet.
Objective: they should be used as instruments of payment in everyday life – i.e. as “digital cash” on the Blockchain.
These other types of tokens that are not tied to a fixed value – such as classical crypto-assets such as Bitcoin or utility tokens (which e.g. are needed for access to a digital service).
Example:
- Bitcoin
- Ethereum
- Tokens that e.g. allow access to a platform or a game
Objective: no stable value – instead more often considered as investment objects or digital rights of use.
Regulated crypto-services (under MiCAR)
Such services require a licence and are only allowed to be provided by providers with a MiCAR authorisation. As an investor you profit from clear information requirements, ongoing supervision and legal protection:
Access and Market Entry:
- Exchanging crypto-assets against national currencies
For example: Purchasing Bitcoin for Euro or vice versa. Clear price information must be provided. - Exchanging of crypto-assets against one another
For example: Exchanging Ethereum for Solana. This service has been regulated with the objective of protecting investors against intransparency. - Advice
For example: personal recommendations to buy a specific token. Advice must be neutral, transparent and tailored to the investor. - Placement of crypto-assets
For example: Distribution of a new crypto-asset on behalf of the issuer. Providers are required to make in-depth information available about the project and the risks when conducting ICOs (Initial Coin Offerings) and ITOs (Initial Token Offerings).
Executing transactions:
- Operating a trading platform for crypto-assets
For example: Exchanges on which buy and sell offers are automatically brought together (order book function). You can trade directly on them with the price being formed based on supply and demand. The operator is required to ensure technical security and transparency. - Execution of orders for clients
For example: a provider executes your buy or sell order for crypto-assets. The crypto-service provider trades on your behalf but not on its own account. The provider must act in a neutral manner and shall not be allowed to charge any hidden costs. - Receiving and transmitting of orders
For example: a provider transmits your buy or sell enquiries on to another service provider. A licence is required even if the provider does not trade itself, but only transmits orders. - Transfer service
A provider transfers crypto-assets on behalf of the client to another person, e.g. by means of a wallet-to-wallet transaction. This service also requires an authorisation.
Custody and administration after purchase:
- Custody and administration of crypto-assets for third parties
For example: providers store and administer your private keys in a secure wallet. They have to ensure that your access data is kept safe e.g. using cold wallets or multi-signature procedures. - Portfolio management
A service provider actively manages a client’s assets held in crypto – and decides what to buy and sell to optimise the portfolio. A licence is necessary for this.
What crypto activities are unregulated?
European rules like MiCAR do not cover all crypto offerings. If an offering is not regulated, this means that:
- The provider does not require an authorisation.
- There is no independent supervisory authority.
- There are no obligations regarding information or explanation.
The most important unregulated sectors explained in detail:
Unregulated crypto-asset services
Some platforms offer to lend your crypto assets (“lending”) or to borrow them from you (“borrowing”). They often promise very high interest rates.
Why is this unregulated?
Such services are usually not classified as a banking transaction or a financial service, and therefore do not fall under the scope of MiCAR or other EU regulations.
Risks:
- No transparency and information obligations
- You do not know who is behind such an offering
- A total loss is possible if the platform is unable to pay
Some platforms offer to lend your crypto assets (“lending”) or to borrow them from you (“borrowing”). They often promise very high interest rates.
Why is this unregulated?
Such services are usually not classified as a banking transaction or a financial service, and therefore do not fall under the scope of MiCAR or other EU regulations.
Risks:
- No transparency and information obligations
- You do not know who is behind such an offering
- A total loss is possible if the platform is unable to pay
In the case of “staking” you make your crypto-assets available for using in hedging transactions and receive a payment (interest) for doing so. Some providers take care of this process for you.
Why is this unregulated?
Many staking offerings are not (yet) considered as a regulated financial service, although they function like investment products.
Risks:
- providers may disappear with the assets
- losses due to drop in prices or technical errors
- unclear contractual conditions
Some providers display both regulated and unregulated products on a single platform: for example a crypto-asset execution venue (regulated) alongside selling NFTs or staking offerings (unregulated).
Why is this problematic?
The difference is often not clearly apparent for investors. As a result, a false sense of security arises.
Risks:
- Investors might think that they are protected under MiCAR – which is not actually the case.
- Providers use their MiCAR licence to advertise unregulated products
- Unclear responsibilities
Unregulated Asset Categories (Types)
NFTs are individual digital items such as works of art, trading cards or music clips on the blockchain. Every NFT is technically unique and cannot be exchanged.
Why is this unregulated?
Such tokens do not have any financial usage, but instead have an idealistic value.
Risks:
- Not redemption right
- Value is often purely speculative
- Frequent forgeries, plagiarised copies or sold fraudulently