Is Europe Regulating Bitcoin to Death? - Time to Talk About It!

Joël here! 👋

First off, happy New Year! I hope you enjoyed the festive days with your family or friends, onto the topic at hand.

This one has been building up for a while, and it's time to say what needs to be said.

If you've followed my writing, you know the drill: bullish on Bitcoin, critical of the legacy financial system, generally optimistic about technology making our lives better.

But today's issue is different.

What's happening in Europe right now, the regulatory environment we're building around Bitcoin, is tricky.

And the worst part is that almost no one in the mainstream European tech media is talking about it.

So, it’s up to me to do that! Grab a coffee or tea; this is going to be a long one.

The contrast couldn't be starker.

In January 2024, the SEC approved 11 spot Bitcoin ETFs, and within weeks, billions of dollars flowed into these products.

BlackRock, Fidelity, and Invesco, the biggest names in asset management, suddenly enabled Bitcoin exposure for their clients.

This wasn't some Bitcoin bro victory lap; this was institutional finance acknowledging that Bitcoin is here and they're ready to get on board.

By the end of April 2024, Hong Kong had also approved spot Bitcoin ETFs, signaling Asia's entry into the race.

The message was clear: the two largest economies in the world were creating regulated, institutional-grade Bitcoin investment products.

And Europe, or to be more concrete, the EU?

Well, the EU was busy drafting compliance frameworks, debating environmental disclosure requirements, and ensuring that every Bitcoin transaction, no matter how small, is logged, reported, and kept for future reference.

The U.S. accomplished in months what takes years in the EU, and at this point, the major surprise would be if it were any different.

This is the Brussels way.

They regulate first and understand later, and by doing so, create frameworks for problems that don't exist while ignoring the opportunities right in front of them.

All while wondering why Europe’s best founders leave for Dubai, Singapore, or the U.S.

The numbers paint a clear picture; U.S. spot Bitcoin ETFs accumulated over $100 billion in assets under management within their first year.

At the same time, European Bitcoin ETPs and ETNs, which have existed for years, remain institutional afterthoughts with a fraction of those inflows.

The infrastructure and demand exist, but the regulatory clarity that would unlock institutional capital doesn't.

Markets in Crypto-Assets Regulation, better known as MiCA, was supposed to be Europe's answer to the "crypto problem."

Hundreds of pages of regulatory text are designed to bring clarity to the European market. The reality is considerably less inspiring.

MiCA's fundamental flaw is treating Bitcoin (a decentralized network with no issuer, no foundation, no CEO, no marketing team) identically to every random token launched by a VC-backed project in the Cayman Islands.

This is like regulating gold and penny stocks under the same framework, except worse, because gold doesn't have environmental disclosure requirements.

Bitcoin companies operating in Europe will now need to publish detailed reports on their energy consumption and environmental impact.

Never mind that Bitcoin mining is increasingly powered by renewable energy, with estimates suggesting over 55% of global mining now uses sustainable sources.

Never mind that the traditional banking system consumes far more energy when you account for all the office buildings, data centers, ATMs, armored vehicles, and the entire physical-currency infrastructure.

No, Bitcoin is the environmental villain, and European regulators are here to save us from it.

The environmental provisions alone add compliance costs that push smaller companies out of the market.

But MiCA goes further, creating licensing requirements, reserve mandates for stablecoin issuers, and ongoing reporting obligations that require dedicated legal and compliance teams.

For a well-funded exchange, these costs are manageable. For a three-person startup trying to build the next great Bitcoin wallet, they're prohibitive. Unless you have deep pockets behind your startup idea, you cannot compete.

The stablecoin provisions deserve special mention. MiCA's requirements have already caused Tether, the largest stablecoin by market cap, to limit its European operations.

Whether you love or hate Tether, the practical effect is that European users now have fewer options for dollar-denominated digital assets.

The regulation didn't make stablecoins safer; it just made them less accessible.

On the other hand, this move with Tether and stablecoins also pushed European banks to think ahead.

A group of 10 banks has come out and stated their full support for a Euro-denominated stablecoin. Some positives at least.

If MiCAR is annoying, the EU's implementation of the FATF Travel Rule is a whole other level.

Under these rules, crypto service providers must collect and transmit sender and receiver information for every transaction.

The justification is money laundering prevention, which sounds reasonable until you look at the details. And boy oh boy, they look really scary!

The proposed reporting threshold is zero euros. Not €1,000. Not €100. Zero.

That means if you buy €10 worth of Bitcoin, your exchange collects your personal information, verifies it, and worst case, must share it with authorities if the user seems suspicious.

If you send €5 to a friend, that transaction gets logged. Every single Bitcoin transaction through a European exchange creates a data trail that would make traditional banks blush.

Compare this to the United States, where the threshold is $3,000. Still invasive, but at least it acknowledges that not every micropayment requires government oversight.

Brussels has decided that every Satoshi is suspicious until proven innocent.

And that’s the crazy thing about this whole thing! You have to prove that you’re only buying an asset. Nothing else!

The folks in Brussels, though, think you’re a criminal. This is roughly the same idea as thinking holding cash makes me a drug dealer.

The Transfer of Funds Regulation extends these rules to self-hosted wallets, which is where things get truly crazy.

A self-hosted wallet is when you hold your own Bitcoin, no exchange, no custodian, just you and your private keys. This is the entire point of Bitcoin.

It's money you actually own, not an IOU from a company that might freeze your account, go bankrupt, or hand over your data to whoever asks.

Under TFR, if you want to withdraw Bitcoin from an exchange to your own wallet, the exchange may need to verify that you own that wallet.

The regulation doesn't clearly specify how this verification should work, so exchanges have implemented various solutions.

From signing messages with private keys, submitting screenshots, or making the process so annoying that users give up and leave their Bitcoin on the exchange.

At this point, I’m only speculating, but it seems like Brussels likes the latter outcome. Bitcoin on an exchange is Bitcoin that can be tracked, frozen, and seized.

Bitcoin in your own wallet is Bitcoin they can't control, and that terrifies the people who believe financial surveillance is a public good.

The people pushing these regulations claim to care about consumer protection, financial inclusion, and the prevention of financial crime.

Let me explain what actually happens when you implement these rules.

The wealthy and sophisticated find workarounds. They use foreign exchanges, peer-to-peer trading, or relocate to friendlier jurisdictions.

Compliance requirements are an inconvenience, not a barrier, for anyone with resources and knowledge.

The middle class gets annoyed but complies, handing over their data and accepting the surveillance because the friction isn't quite high enough to drive them away entirely.

They become good digital citizens; their every transaction is logged in databases they'll never see. All for the better good, because these bad, bad terrorists are out there.

The unbanked stay unbanked. If you don't have a government ID, proof of address, and a bank account to verify your identity, you cannot use a compliant European exchange.

The very people Bitcoin was designed to help, those without access to traditional banking, get locked out of the European Bitcoin ecosystem entirely. And let me tell you, they also exist in Europe!

And the criminals? They're using mixers, foreign platforms, peer-to-peer trades, and in-person transactions.

They're not submitting selfies to Coinbase. The entire surveillance infrastructure catches regular people while the actual targets route around it.

When I visited El Salvador in late 2023, this contrast became viscerally clear.

On the edge of the Santa Ana volcano, I talked to locals about Bitcoin adoption and paid for food at a farmers’ market.

A woman selling handmade goods accepted payment on her wallet, no KYC, no compliance officer, no government database logging her $3 sale.

One guy told me he doesn't keep a hardware wallet at home. In his neighborhood, if people discover you have Bitcoin keys somewhere in your house, you become a target.

So, he memorized his seed phrase, twenty-four words in his head, his entire savings accessible anywhere in the world but untouchable by anyone who doesn't know those words.

According to Brussels, if this guy were to live in Europe, he would be a compliance risk.

He's using a "self-hosted wallet" without proper verification. He's transacting without filing reports.

The regulatory framework designed to "protect consumers" would exclude him entirely from the system.

Working at a Bitcoin brokerage means talking to founders, developers, and compliance teams across Europe every week.

The pattern is unmistakable: the best people are leaving.

Not loudly, not dramatically, just quietly incorporating in Dubai, or the U.S., and leaving Europe entirely.

The compliance costs alone push small companies out of the market. If you're a startup trying to build a Bitcoin product, you can't afford the lawyers, the reporting infrastructure, the endless back-and-forth with regulators.

So you move, shut down, or never start in the first place.

The regulatory moat doesn't protect consumers. It protects incumbents.

Big banks and established financial institutions can absorb compliance costs. They have armies of lawyers, and they actually benefit from regulations that raise the barrier to entry.

The entrepreneur trying to build something new gets crushed before reaching scale.

Speaking of Dubai and the UAE, the country and its economy recognized the advantages of Bitcoin and worked to foster a friendly environment.

That is one where it’s easier to set up a company, enjoy lean and fair regulation, have higher trading limits for individuals, and have a straightforward taxation system.

Why can't the EU adopt similar approaches at the bloc level?

Because that would require admitting that Bitcoin isn't a threat. That it's actually useful. That the bureaucrats might not have all the answers.

Sensible Bitcoin regulation isn't complicated. It just requires acknowledging reality.

First, treat Bitcoin differently because it is different.

Bitcoin has no issuer, no company to hold accountable, no CEO to subpoena, and no foundation controlling the protocol.

Regulating it like a security or a company-issued token makes zero sense. Create a separate category for decentralized networks with no central authority.

Second, implement proportional reporting thresholds. Zero-euro reporting requirements are absurd.

A reasonable threshold, €1,000 or €5,000, would target large transactions while leaving everyday users alone.

The current approach creates a massive surveillance infrastructure to catch transactions that couldn't possibly fund terrorism.

Third, stop criminalizing self-custody. Holding your own Bitcoin is not a suspicious activity; it's the entire point of the technology.

The lesson of FTX, Celsius, and every other exchange collapse is that custody introduces counterparty risk.

Pushing people toward custodial solutions through regulatory friction makes them less safe, not more.

Fourth, harmonize tax treatment across the bloc.

Germany's one-year exemption works (for now) unless the government, or particularly, the left-wing voter bloc changes its mind.

Other EU countries treat every transaction as a taxable event, making it nearly impossible to use Bitcoin for actual payments.

Pick a standard and apply it consistently.

Fifth, engage with the actual Bitcoin community. Not the "crypto" lobby dominated by token projects seeking regulatory capture, but the developers, companies, and users building on Bitcoin who understand why certain rules are unworkable.

Europe had a chance to lead in Internet companies during the 1990s. We regulated ourselves out of it. Google, Meta, Amazon, all American.

Then the EU had a chance to lead in cloud computing. They regulated themselves out of it. AWS, Azure, Google Cloud, all American.

Now that Brussels has a chance to lead on sound money infrastructure, they’re making the same mistakes again.

The difference is that Bitcoin is global and permissionless. It doesn't need Europe's permission to succeed.

The network will grow regardless of what Brussels decides.

The question is whether Europe participates in building that future or watches from the sidelines, eventually using Bitcoin infrastructure built in America, hosted in Asia, and regulated by no one in Brussels, paying fees to foreign companies for access to an open protocol.

For European Bitcoiners, the path forward requires engagement, not surrender.

Because the more people who hold their own keys, the harder it is to implement surveillance.

Bitcoin gives individuals control over their own money, and for some people in positions of power, that's terrifying.

The regulatory assault we're witnessing isn't really about consumer protection or preventing money laundering. It's about control.

It's about protecting legacy institutions from competition and maintaining a financial system in which every transaction can be monitored, approved, or denied by intermediaries.

No amount of regulation will change what Bitcoin fundamentally is: a decentralized network for transferring value without permission.

Brussels can choose to embrace that reality and build accordingly, or it can keep pretending that enough paperwork will make Bitcoin go away.

We know how that bet turns out eventually…