22nd March 2025 > > MiCA, Ethena, & Australia.

tl;dr

MiCA shows its teeth to the benefit of us all. Australia sees the benefits of MiCA and its ability to attract tax dollars, and now wants a piece of the action.

Market Snap

Market Wrap

Perpetual futures funding rates turned negative overnight indicating that the leveraged shorts are perhaps a touch over their skis.

Occasional Series – Interregnum in Mongolia

My ger and teepee buddy Simon made his local newspaper after running the Mongol 100:

https://www.inyourarea.co.uk/news/gower-dad-tackles-four-marathons-in-four-days-across-giant-frozen-lake-in-mongolia

Each day I saw Simon at that day’s start line, then later on hanging out with a beer at camp with him having got to that day’s finish line literally hours before me.

Curious Cryptos’ Commentary – MiCA in action, and it’s beautiful to behold

The EU’s flagship crypto regulation MiCA – the global gold standard – is up and running, and has already made the world a better place.

The CCC has in the past been highly critical of the ENA (Ethana) ecosystem, and its stablecoin USDe in particular. Stablecoins should be backed at a ratio of greater than 1:1 in cash or cash-like instruments e.g. short-term, highly liquid government bonds. Any other situation is insufferable, for all synthetic variations of this rule will one day collapse at a time of severe market stress.

USDe is backed by physical holdings of cryptos “hedged” with a short in perpetual futures, a set-up that has long been a staple of TradFi markets and commonly referred to as the cash and carry trade. It is a trade that can make decent money in the right circumstances. It can also blow-up in spectacular fashion (think LTCM) as by definition it is a leveraged trade. Given that financial markets go through periodic bouts of extreme stress, always and forever more accompanied by deleveraging on a grand scale, I can promise you one thing. USDe has a limited life span until it implodes and causes severe market disruption for all cryptos. That day is likely years away, or perhaps longer, as governments have learnt to lean on their respective central bankers to print fiat in large quantities to prop up markets, a tactic that is very effective at delaying the day of reckoning, only to make it worse when it finally happens.

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Ethena GmbH has applied for registration under MiCA. And look what the German regulator BaFin has to say about that:

"During the ongoing licensing process, BaFin has identified, among other things, serious deficiencies in the bank's business organization and violations of MiCA requirements, such as those regarding asset reserves and compliance with capital requirements (in relation to USDe)."

To be fair, any stablecoin regulation worth its salt would come to this conclusion, but it is very heartening to see it in black and white.

Ethena’s response is somewhat disconcerting. Instead of publicly acknowledging its inherent susceptibility to fail, the company prefers to go down the route of regulatory arbitrage:

“Since its inception, Ethena has been exploring various options and jurisdictions when it comes to regulatory frameworks globally that would be conducive to our business, and as a result we have multiple entities within our structure facilitating minting and redemption … While we are disappointed by this decision, we will continue to evaluate alternative frameworks.”

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Ethena has a second stablecoin USDtb which is backed by BlackRock’s tokenised Treasury Bill fund, a set-up one cannot find fault with. The solution is obvious – convert all USDe to USDtb and this whole problem goes away, making the crypto markets stronger and more resilient.

I guess the rewards on offer to Ethena from USDtb are less than those from USDe.

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Why is it that after decades of the UK being forced to simply accept financial regulations that are stultifying to business (e.g. laughably classifying governments bonds as risk-free), we now refuse to import wholesale all the provisions of MiCA, a decision that would help kickstart the UK’s crypto industry (aka creating economic growth)? Answers, as always, on a postcard to CC Towers.

Curious Cryptos’ Commentary – Australia

The Australian government, impressed by the way that MiCA is attracting tax dollars to the EU, has responded with a policy paper titled “Statement on Developing an Innovative Australian Digital Asset Industry”:

https://treasury.gov.au/sites/default/files/2025-03/p2025-628504-s.pdf

Its aims are laudable:

“Our approach will help industry to identify opportunities and manage risks, unlock innovation, protect consumers and uphold market integrity. By aligning with international best practice, Australia can boost the global competitiveness of our digital asset sector.”

And it gives a h/t to MiCA:

“This approach is informed by action in jurisdictions such as the European Union (EU) and Singapore.”

The paper is largely short on the detail, but it is encouraging in its commentary about the dystopian ideals of a CBDC:

“… while a clear public interest case is yet to emerge to issue a retail CBDC, issuing a wholesale CBDC could play an important role in enhancing the functioning of wholesale markets in Australia.”

Keeping CBDCs out of the retail sphere would be a massive win for liberty, freedom, and democracy.

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With an election to be held in May, it remains to be seen exactly how much progress will be made, but this is encouraging news nonetheless. The direction of travel is plain.