Cross-border stablecoin issuers need to conform to EU regulations, asserts ECB Head.

In an unexpected move, the Czech National Bank (CNB) has proposed allocating 5% of public funds to Bitcoin as part of a diversification plan. This potential allocation could amount to over $7.3 billion.

While Bitcoin, like other cryptocurrencies, is built on blockchain technology and operates in a decentralized manner, theoretically making it immune to government interference, it seems that EU banks are unlikely to adopt Bitcoin as a reserve asset.

The European Central Bank (ECB), as the chief banking supervisor and lender of last resort in the eurozone, has placed stablecoin oversight at the centre of its stability mandate. The ECB, under Lagarde, has emphasized that Bitcoin does not meet its criteria for reserve assets, which place a strong emphasis on liquidity, security, and stability.

Lagarde reiterated this stance at the January 30 conference, stating that Bitcoin does not meet the ECB's criteria for reserve assets. Cryptocurrencies are not legal tender in the EU, and only the euro issued by the ECB is legal tender.

The regulatory landscape for cryptocurrencies is complex. The European Union, the United States, and Hong Kong are known to regulate stablecoins, with the EU implementing the MiCA regulation that sets clear compliance requirements for crypto service providers. However, national laws still face challenges due to regulatory gaps, especially concerning stablecoins issued partly outside the EU, which can circumvent full EU oversight. As a result, national laws alone cannot entirely close these legal gaps.

The CNB was scheduled to review the proposal on January 30. The outcome of this review remains to be seen, but it is clear that the future of Bitcoin and other cryptocurrencies in the financial landscape of the EU is a topic of ongoing discussion and debate.