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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 taxed by the old Brussels bureaucracy.
European lawmakers are debating whether to include the market for so-called NFCs – non-fungible tokens – in a proposed European law that will regulate crypto assets and the companies that manage them, called MiCA. The legislation initially eschewed such online collectibles. Not anymore.
Lawmakers are determined to prevent scammers and money launderers from taking advantage of the unregulated industry, which has attracted the attention of tax authorities in Australia, Canada, the Netherlands, the UK and the United States as it has become a popular way to buy and to buy. sell things. as 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 pirated digital art, while New York prosecutors recently charged a former employee with misdemeanor.
The challenge is that the crypto market has developed at lightning speed since the European Commission proposed the MiCA almost two years ago to provide investors with guarantees comparable to those of the financial sector. Legislators are therefore determined to act out of fear that NFTs in Europe are not monitored, leading crypto firms to use the sector to bypass MiCA altogether. Doing nothing is not an option and lawmakers hope to reach an agreement as early as next week.
However, the crypto lobby fears that lawmakers in Brussels are going too far in keeping up with crypto technology. He says it is a mistake to cram NFTs into MiCA because these assets are not financial in nature. They are more aimed at artists, musicians and video gamers.
The risk is that they fear the EU is burying artistic types under paperwork and unmarketable customer checks, and they warn that a heavy-handed approach could suffocate the European NFT market, which is still in its infancy.
“The use cases for NFT are just getting started. 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 that allows people to keep crypto assets and NFTs out of exchanges.
monkeys and birds
NFTs made headlines after celebrities spent hundreds of thousands of dollars on unique digital artworks, such as Bored Ape Yacht Club and Moonbirds. These collectibles exploded in popularity last year, but have since been dampened by the general downturn in the crypto market. The NFT sector is now valued at approximately $12 billion.
NFTs have broader applications than line drawings. Musicians can sell their songs as NFTs, for example as an alternative source of income. Investors also buy digital stocks 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 buy props for their virtual characters.
This deal will be further examined on June 30, when Commission officials, MEPs and Council representatives from EU capitals will meet to try to finalize legislative negotiations on the MiCA. There is always a chance that the discussions will need more time, given the continuing divisions, including over NFTs.
The Commission has taken a tougher stance, fearing investors could be hurt by NFT sales that are worth much less than deals that make headlines.
“Left unregulated, NFT markets will continue to be subject to serious risks of market manipulation, such as mock and insider trading,” Commission officials explained to Council and Parliament legislators in a confidential note obtained by POLITICO before the meeting next week.
Find a compromise
The Commission is committed to ensuring that legislation applies to companies that allow the trading or custody of NFTs, while artists and companies are 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. In her view, the MiCA should target major online auction houses such as OpenSea or video game platforms that fall below certain thresholds, such as the average monthly trade, according to a separate document the Council has prepared to try to reach a compromise.†
This approach seems to have won over some within the crypto industry, although they 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, Blockchain General Secretary for Europe. “The goal for regulators should have been to develop a bespoke scheme for NFTs that explores their variety and addresses the specific risks each different use case may present.”