Crypto Industry Fears EU Crackdown on NFTs – POLITICO

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Crypto businesses fear that a new way to sell digital assets like artwork, music, memes, and even tweets could soon be overwhelmed by the old bureaucracy in Brussels.

EU lawmakers are debating whether they should tie the market for so-called NFTs (non-fungible tokens) to an EU bill that will regulate crypto assets and the companies that handle them, called MiCA. Legislation had originally stayed away from these online collectibles. Not anymore.

Lawmakers are determined to prevent fraudsters and money launderers from abusing the unregulated industry, which has drawn the attention of tax authorities in Australia, Canada, the Netherlands, the UK and the US now that it has become a popular way of buying and selling things. as digital works of art. A major NFT marketplace called OpenSea, for example, is facing multiple lawsuits in the US amid allegations of stolen and plagiarized digital art, while prosecutors in New York recently charged a former employee with insider trading.

The challenge is that the crypto market has evolved at breakneck speed since the European Commission proposed MiCA nearly two years ago to give investors guarantees similar to those in the financial sector. Lawmakers are therefore determined to act amid concerns that NFTs go unchecked in Europe, allowing crypto companies to use the sector to bypass MiCA altogether. Inaction is not an option and lawmakers hope to reach an agreement on the issue as soon as next week.

However, the crypto lobby fears that lawmakers in Brussels are going too far in an attempt to keep up with crypto technology. It says that putting NFTs in MiCA is a mistake because these assets are not financial in nature. They cater more to artists, musicians and gamers.

The risk is that they fear the EU will bury art-types under paperwork and non-market-fit client controls, and warn that a heavy-handed approach could stifle the still-infancy European NFT market.

“NFT use cases are just emerging. A big one right now is art. Art that goes from physical to digital is not fundamentally 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 chief policy officer at Ledger, a company that offers a USB-like device. digital wallet for people to hold crypto assets and NFTs outside of exchanges.

apes 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 online 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 game players can use the technology to buy accessories for their virtual characters.

This market will come under renewed scrutiny on June 30, as commission officials, MEPs and representatives from EU capitals on the Council are scheduled to meet in a bid to complete legislative negotiations on MiCA. There is always the possibility that the talks will need more time, given the ongoing divisions, including over NFTs.

The Commission has taken a tougher stance amid concerns that investors could be shortchanged with NFT sales worth much less than the headline-grabbing deals.

“If left unregulated, NFT markets will continue to be prone to serious risks of market manipulation, such as money laundering and insider trading,” Commission officials told lawmakers in the Council and Parliament in a statement. confidential memo, obtained by POLITICO, ahead of next week’s meeting.

find a compromise

The Commission is determined to ensure that legislation covers companies that allow the exchange or custody of NFTs, while leaving artists and businesses free to create and maintain their own NFTs without suffering the regulatory burden. Many MEPs are also in favor of this approach.

But the Council is not convinced. In his opinion, MiCA should target large online auction houses like OpenSea or video game platforms that fall below certain thresholds, such as average monthly trade, according to a separate document the Council prepared to try to reach. A commitment..

That approach seems to have won over some within the crypto industry, although I would still prefer a separate set of rules outside of MiCA.

“Approaching NFTs as purely financial instruments completely misses the innovation they can bring to Europe,” said Robert Kopitsch, Blockchain Secretary General for Europe. “The goal for regulators should have been to develop a tailored regime for NFTs that looks at their variety and addresses the specific risks that each different use case might bring.”

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