EU crypto rules boost safety and trust but may force many startups out of business

The European Union’s Markets in Crypto-Assets regulation is a double-edged sword for the industry. It brings legal certainty and investor protection – but at a price that many early-stage firms cannot afford.

That is the central argument of a new guest post by Yuliya Barabash, founder and managing partner at SBSB Fintech Lawyers. In her view, MiCA’s critics are right about the costs: capital requirements, governance rules, ICT and outsourcing mandates, and the need for local presence all add up. Smaller projects struggle to bear that burden.

But Barabash says that is exactly the point. “Crypto is no longer a hobby market,” she writes. Once a company handles customer assets or exchange activity, promising innovation is not enough. “Startups that remain in the market under MiCA are more likely to have solid compliance frameworks and clearer governance.” The sector’s worst reputational damage, she notes, has come from failures, hacks, and platforms that grew too fast without operational maturity – not from overregulation.

Europe, she argues, is not trying to be the loudest crypto jurisdiction. It is trying to be the most credible one. Predictable rules and enforcement encourage banks, partners, and users to engage. That credibility could become a long-term competitive advantage.

Yet the EU’s approach has a critical blind spot. “The central flaw is that it treats crypto as though the sector were already mature enough to absorb traditional financial regulation at full weight,” Barabash writes. Crypto innovation still depends on experimentation and low-cost iteration. New companies need room to test models and survive before revenue stabilises. MiCA narrows that window dramatically, effectively asking startups to behave like regulated incumbents before they have proven their viability.

The result is a trade-off with no easy answer. Europe may become safer for users, but it also risks becoming smaller – a market where only deep-pocketed players can afford to stay. For traders and investors, the takeaway is clear: the cost of compliance will continue to reshape which projects survive and where they choose to base themselves. The next catalyst to watch is how national regulators across the EU interpret and enforce MiCA’s rules, especially for smaller token issuers and decentralised finance protocols that fall within its scope.