Europe’s crypto rulebook is fraying — a push to put ESMA in charge could reshape markets

Why the fight over supervision matters now

This week’s flashpoint in Brussels is simple: national regulators are enforcing the EU’s crypto law, MiCA, in different ways. One high-profile move — a national authority blocking a firm’s attempt to use the EU “passport” that should let it operate across member states — has made the problem impossible to ignore.

For markets and firms, the result is practical and immediate. When supervision is patchy, trading venues, custodians and stablecoin issuers face legal uncertainty. Firms must rush to create local hubs, compliance costs climb, and cross-border liquidity becomes harder to rely on. For investors, the risk is higher short-term volatility and thinner markets for certain tokens and venues. For policy watchers, the incident has turned the old policy debate into a near-term reform question: should the European Securities and Markets Authority (ESMA) be given clearer, central powers to enforce MiCA?

How MiCA was meant to work — and why its roll-out left gaps

MiCA was sold as a one-stop rulebook for crypto across the European Union. The goal was straightforward: replace a messy patchwork of national rules with a common set of standards so tokens, exchanges and custodians could operate across borders using a single EU authorization or “passport.”

But the law left crucial parts of supervision in the hands of national competent authorities. In practice, that means the design mixes EU-level standards with large discretionary powers for local regulators on things like marketing, consumer protection, and authorizations during the transition phase.

Two features of the implementation phase have invited divergence. First, MiCA relies heavily on national authorities to interpret concepts that are still new — for example, which tokens count as e-money tokens versus asset-referenced tokens, or what kinds of custody arrangements meet the law’s safekeeping tests. Those calls require judgment, and national regulators have different priorities and risk appetites.

Second, the law left some enforcement tools and cross-border co-ordination mechanisms underdeveloped. ESMA was given a role as a converger of approaches and as a technical adviser, but not the clear-cut power to step in and override a national regulator. That gap matters when a firm with an EU passport says it should be able to serve customers across the bloc, while one or more national authorities say it must stop certain activities inside their borders.

Operationally, the rollout has exposed capacity limits. Smaller national agencies lack the staff and specialist expertise to handle complex token audits or to monitor custody technology. Where resource constraints meet different political priorities — such as a national focus on consumer protection versus one on market growth — divergent decisions are the natural outcome.

Which enforcement fights are already flaring up

The most visible example involves a national regulator blocking passporting rights for a crypto firm. That move showed how a single national decision can cut across the idea of EU-wide market access. Firms that assumed they could set up under MiCA and immediately serve customers across the bloc found they still face local gates.

Beyond passporting, the implementation period has produced other flashpoints. These include differing national tests for what constitutes acceptable proof of reserves and audit practices for stablecoins, uneven approaches to staking and yield products, and conflicting interpretations of marketing rules aimed at retail customers. Some states have adopted a more permissive stance to attract crypto businesses; others have moved quickly to restrict operations they view as risky.

These differences are more than bureaucratic friction. They change business plans. A custodian told investors it needed to open multiple EU entities rather than rely on a single passported license. An exchange paused expansion into certain member states until it secured local approvals. And a stablecoin issuer postponed EU-wide launches while it sorted out audit and reserve requirements country by country.

What centralizing supervision at ESMA would mean for markets and firms

Giving ESMA clearer enforcement powers would reduce uncertainty for cross-border businesses. If a single EU body could issue or refuse a passport and resolve disputes between member states, firms could scale more predictably. That would favour large, well-funded players that can meet tough EU-wide compliance standards and afford the internal controls regulators demand.

For smaller exchanges, custodians and niche token projects, the picture is mixed. In the short term, stronger EU supervision tends to raise entry costs: higher compliance budgets, longer authorization timelines and stricter capital or reserve rules. That squeezes marginal players and can accelerate consolidation in the market — a handful of firms with scale and compliance expertise could capture more market share.

Liquidity and trading costs would likely shift, too. Clear, harmonized rules make institutional participation easier, which supports deeper, more reliable markets. But if many smaller venues close or stop cross-border activity, some tokens and trading pairs could see thinner order books and wider spreads. Market makers would need to factor in new operational and legal costs, and that can show up as higher transaction costs for end users.

Custody and stablecoin markets stand to gain clarity but face near-term strain. Custodians will need to match a single supervisory standard, which raises engineering and audit work. Stablecoin issuers would face unified disclosure and reserve-audit rules that increase trust — a plus for institutional customers — but also make launches slower and costlier.

Overall, the winners from centralization would be big, regulated incumbents and firms already geared to serve institutions. The losers in the near term are small, cross-border operators and projects built to exploit regulatory patchwork.

How this could play out politically — and what investors should watch next

There are three realistic pathways from here. First, incremental change: the Commission nudges ESMA’s mandate through secondary legislation and stronger guidance, leaving national powers broadly intact but improving co-ordination. Second, partial centralization: ESMA gets explicit powers over passporting decisions, dispute resolution and certain high-risk activities like stablecoin reserve oversight. Third, a deeper overhaul: a formal expansion of ESMA’s remit that transfers significant supervisory authority from national regulators to the EU level.

Timelines matter. Incremental moves could appear within months as the Commission and ESMA issue guidance and harmonized templates. Partial or deep centralization would take longer — likely a year or two — because it requires political agreement in the Council and Parliament and careful drafting to avoid legal challenges.

Here are the concrete signals investors should monitor:

• Public consultations or formal proposals from the European Commission that mention expanding ESMA’s powers.
• ESMA statements requesting new legal tools or flagging national divergences as a systemic problem.
• National enforcement actions that explicitly block passporting or impose conflicting requirements on the same firm.
• High-profile legal challenges to national decisions that end up before the Court of Justice of the EU — those rulings can set precedents quickly.
• Firm-level operational moves: announcements that exchanges or custodians are reorganizing to set up local EU hubs or pausing cross-border services.

In plain terms: if you see more public fights between ESMA and a national regulator, or if the Commission starts drafting legislative fixes, centralization is getting real. That is generally good for institutional confidence and long-term liquidity, but it will squeeze smaller players and likely make some tokens and venues less liquid in the short term.

Investor takeaway: the present patchwork is itself a risk. A move to stronger ESMA supervision would be bullish for large, regulated firms and for the idea of crypto as an institutional-grade market. But expect a difficult transition that raises costs and churn among smaller operators before markets settle into a clearer, European-wide structure.

Sources

• cointelegraph.com
• cointelegraph.com
• cointelegraph.com
• cointelegraph.com