In the financial world, we hear about new forms of investing all the time. Crypto assets, security tokens and NFTs appear naturally next to funds, securities and ETFs. But what are crypto assets and what supervision exists to ensure certain minimum standards? At the EU level, the MiCA regulation was recently passed, which is intended to bring uniform regulation for crypto assets.
Who wouldn’t want to buy a fraction of the Mona Lisa or a Picasso? Or how about purchasing your favorite tokenized song or a small piece of Cologne Cathedral? The latter would probably be my personal preference. It seems like we’ve entered the age of unlimited opportunity when it comes to investing.
The examples mentioned refer to so-called NFTs, the abbreviation for non-fungible tokens. This is a kind of unique and non-exchangeable token that depicts a specific object of any kind in a blockchain or comparable technology. This means that virtually every possible asset can be digitally securitized and made tradable.
The art world has already successfully discovered this for itself. The Uffizi Gallery in Florence used NFTs to help offset its pandemic losses and promptly had some of its most famous artworks made as NFTs. A Michelangelo for 140,000 euros could be given away for a birthday – digitally, of course. Christie’s sold Dmitri Cherniak’s digital artwork “EVERYDAYS: THE FIRST 5000 DAYS” for a good $69 million in an auction last year.
Renate Prinz is a lawyer specializing in corporate law, M
And NFTs have also found their way into professional football. What used to be the good old Panini album can now be purchased in the form of NFTs. A Cristiano Ronaldo “Panini” NFT has sold for $400,000. The possibilities are endless, ranging from custom digital artwork to racehorses and Gucci avatars.
And NFTs are just one of many crypto asset classes. Investing in cryptocurrencies such as Bitcoin or Ether has long been known and seems to have found its way into every household. It gets a bit more complex with e-money tokens or so-called stablecoins. But vouchers can also be marketed in crypto values, and in the meantime even classic securities are not left out. The so-called security tokens basically cover the classic financial instrument with which, for example, loan claims are digitally securitized and made tradable. The crypto values have thus also found their way into the crowdfunding sector, which is often used as an alternative form of financing for start-ups.
But isn’t something missing? What about financial supervision in these cases? Anyone who has ever dealt with the subject of licensing requirements, capital requirements, owner control and compliance in the financial sector wonders whether there is actually freedom of fools in the crypto sector, as it sometimes appears and is also often propagated.
So far, when it comes to crypto assets, regulatory law has in fact been more of a patchwork, a lot of uncertainty and often different national procedures. Existing laws and regulatory instruments can only partially be applied to the new forms of investment. The EU is now trying to counteract this with new regulations in order to come closer to the goal of uniform and complete European financial supervision in the crypto sector. At the beginning of July, a significant milestone was passed with the MiCA regulation, which creates legal certainty and with which Europe wants to position itself for the digital market in a future-oriented manner. It is one of several legislative initiatives to regulate new areas of finance.
In the summer of 2021, the Electronic Securities Act (eWpG) came into force in Germany, which enables electronic securities and creates clear regulations for this. So far, the absolute requirement for securitization of securities in a physical document has applied in this country. With the EU crowdfunding regulation, which came into force at the end of last year, a uniform regulation was also created in this area, which also includes the tokenized securitization of investments and loans.
At the EU level, the regulation on markets for crypto assets (MiCA) has now been passed as the biggest milestone in crypto regulation to date, which creates a nationwide uniform regulation for crypto assets and services and thus ensures uniform supervision and regulation. That also means its own license requirement and regulations on market abuse and investor protection. It specifies prospectus requirements for certain crypto assets and provides structural requirements for risk hedging as well as behavioral and equity requirements, as we know them from other financial investment areas.
And what if I have acquired my little piece of Picasso? As always with legal regulations – that depends. Unfortunately, it has remained complex for NFTs. After all, buying a Panini picture or a work of art is not a classic financial instrument, is it? NFTs are only covered by the regulation in certain constellations, in the case of so-called NFT collections. It could also be difficult for me with the Cologne Cathedral, because it would be a fraction of a property. In Germany, they are still required to have a document, which cannot yet be fully digitally reproduced. These possibilities then arise in the metaverse…
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