MiCA could shrink Europe’s crypto startup base

The EU’s Markets in Crypto-Assets (MiCA) framework sets rules intended to increase legal certainty and investor protection for crypto markets. Industry lawyers warn the package of requirements could raise compliance costs and push some early-stage projects to leave Europe or close.

Yuliya Barabash, founder and managing partner at SBSB Fintech Lawyers, lists MiCA demands that include capital buffers, governance controls, safeguarding of client assets, information and communication technology standards, outsourcing limits and local-establishment rules. She accepts criticism that the rules set a high bar and says the objective is to ensure firms that handle customer assets and payment flows can be relied on by users, banks, partners and regulators. She wrote: “once a company handles customer assets, payment flows, or exchange activity, it is no longer enough to promise innovation and hope the rest will sort itself out later.”

Other critics say MiCA applies full-scale financial regulation to a sector that still needs room for experimentation. They contend the law requires startups to meet many of the same controls as established firms before they have proven product-market fit or steady revenue, reducing the window for low-cost testing and iteration. Elijah Podavalkin, a technology operator and finance executive, noted: “Europe is basically Silicon Valley’s unpaid internship because we’re not serious about innovation and money every year.”

Supporters and regulators emphasize predictability and investor protection, arguing that clear rules and enforcement can attract banks, institutional partners and conservative users who avoid jurisdictions with uncertain supervision. They say predictable standards can make market participants more willing to engage with crypto firms.

Barabash and other industry figures recommend calibrating requirements to a project’s risk profile and stage of maturity. They propose distinguishing firms that custody customer assets or operate payment systems from experimental projects that do not present the same level of risk.

Lawmakers and industry participants are discussing policy options to protect users while preserving space for early-stage firms to test and develop products. The debate centers on where to set thresholds for capital, governance and local-presence requirements so that regulatory costs align with firm size and risk.