European cryptocurrency firms are facing an existential crisis as stringent new regulations threaten to drive innovation and investment out of the region. The Markets in Crypto-Assets (MiCA) regulation, fully implemented in 2024 and extended to Norway last year, is proving so costly and complex that many startups are questioning their ability to operate within the EU, according to industry insiders.
Torbjørn Bull Jenssen, founder of the Norwegian crypto exchange K33, warned that “all new innovative crypto projects are moving out of Europe. There’s no point in trying to start here.” His sentiment reflects a growing concern that MiCA, intended to provide regulatory clarity and consumer protection, is instead creating a monopolistic environment favoring established players with the resources to navigate its complexities.
The core issue, according to Jenssen, is the prohibitive cost of licensing, and compliance. “It’s becoming incredibly expensive and difficult for new actors to establish themselves,” he stated. While acknowledging that the situation could benefit larger exchanges like K33, he cautioned that “society suffers when new ventures are stifled at birth.”
Analysis from Coincub, a Bitcoin and Web3 information platform, supports this claim, revealing that up to 75% of European Virtual Asset Service Providers (VASPs) risk losing their registration due to the financial burden of MiCA compliance. This has already led to a decrease in venture capital investment, startup closures, and job losses within the industry. The shrinking EU crypto market is further exacerbated by increasing difficulties VASPs face in accessing banking services, with widespread reports of “debanking” – rejected wire transfers, exorbitant fees, and transaction limits.
As of 2024, over 3,000 VASPs were registered in the EU, concentrated in relatively crypto-friendly nations like Poland, Lithuania, and the Czech Republic. MiCA’s implementation has dramatically increased compliance costs, making the market less accessible to newcomers and forcing existing firms to consolidate through mergers and acquisitions.
Bureaucratic Overreach
The challenges extend beyond the 166-page MiCA regulation itself. The rules trigger a cascade of other EU regulations, some of which appear contradictory. Jenssen highlighted a particularly absurd requirement: to meet EU technical standards, companies must extract sensitive personal data from encrypted systems and transmit it insecurely via email.
He argues that the regulations are written by “desk-bound bureaucrats” lacking practical IT security experience. “We’re drowning in a sea of detailed requirements where ticking boxes becomes more important than achieving the intended outcome,” he said.
Finanstilsynet, the Norwegian financial supervisory authority, initially struggled to process the volume of MiCA applications, prompting a six-month extension of the initial deadline for compliance. Pernille Engelstad, who leads the MiCA team at Finanstilsynet, acknowledged the complexity of the regulation for both companies and the regulator itself. However, she defended the detailed requirements, arguing they are necessary to protect consumers and safeguard the large sums of money handled by the crypto industry.
Engelstad also dismissed the notion that MiCA hinders innovation, asserting that a unified European regulatory framework promotes a level playing field.
Past Scandals Fuel Regulation
MiCA was enacted in response to a series of high-profile crypto scandals, most notably the collapse of FTX in 2022. The FTX debacle, which involved the alleged theft of up to $10 billion in customer funds by founder Sam Bankman-Fried, prompted calls for greater regulation of the crypto space. MiCA aims to address these concerns by mandating the segregation of customer funds, requiring stablecoin issuers to maintain adequate reserves, and empowering regulators to oversee and sanction crypto firms.
However, critics argue that the EU has gone too far, potentially stifling innovation in the process. German Chancellor Olaf Scholz recently stated that the EU has become “world champion in overregulation,” a sentiment echoed in the “Draghi Report,” a comprehensive analysis of European competitiveness.
Cowboy Operations and the Need for Enforcement
Torkel Rogstad, founder of the Norwegian crypto exchange Bare Bitcoin, agrees with the assessment of excessive regulation. “You get the impression that people in Brussels just enjoy writing a lot of pages. It’s a chaotic mix of laws and rules that point to each other,” he said.
Rogstad believes the regulations are designed for large institutions, not small Norwegian firms like Bare Bitcoin, which recently hired a lawyer solely to navigate MiCA compliance. He also contends that unregulated exchanges operating outside of Europe, such as Binance, are benefiting from the EU’s stringent rules, as they create friction and drive activity away from the region.
Jenssen emphasizes that the alternative to comprehensive EU regulation isn’t a free-for-all. He argues for clear, strict rules coupled with meaningful consequences for violations. He believes a focus on principles and strong enforcement, rather than bureaucratic detail, is the key to fostering a healthy and secure crypto ecosystem. “We need a more principled approach – and let the incentive to avoid being caught breaking the rules be what ensures compliance,” he concluded.
The European Blockchain Sandbox, launched in February 2026, represents an attempt to bridge the gap between regulation and innovation. The initiative facilitates confidential dialogues between blockchain use case developers and regulators, aiming to clarify legal challenges and foster a more collaborative approach. However, it remains to be seen whether this sandbox can effectively address the concerns of crypto firms struggling to navigate the complexities of MiCA and other EU regulations.
