Snagging a Markets in Crypto Assets (MiCA) license to operate in Europe is great, but, alone, it won't be enough to turn a profit, according to Ben Zhou, the CEO of Bybit, one of the largest cryptocurrency trading platforms.

MiCA doesn't cover the full range of products, such as derivatives and tokenized assets, needed to be profitable, Zhou said in an interview. For those, companies also need a MiFID II (Markets in Financial Instruments Directive) license and an Electronic Money Institution (EMI) license.

“With the current MiCA framework, you can only do fiat-to-crypto, crypto-to-crypto," Zhou said. "There are many elements of a profitable business you cannot do, so even as a MiCA holder — unless you're Kraken or BItpanda or Bitvivo, who are already making money because they have multiple licenses.”

Even Bybit, the world’s second-largest cryptocurrency exchange by trading volume, is some way off from breaking even in Europe, Zhou said. That timeline depends on when the firm acquires the other licenses it needs.

“We don't make money under the current MiCA license. But we're able to afford it because we're a big entity. For us, it's a long-term investment,” Zhou said. “It could be five years away, but I think that is a bit long. I would assume we are probably going to be profitable within two years."

Market consolidation is coming

A MiCA license issued by one country allows a crypto-asset service provider to operate across the European Economic Area (EEA): all 27 members of the European Union, as well as Norway, Iceland and Liechtenstein.

Now is a critical juncture for many small to medium-sized crypto companies in Europe, because the MiCA grandfathering period closes at the end of June. That means firms must have obtained MiCA authorization to operate across the region by July 1 — a cut-off point that is widely expected to be the death knell for many smaller crypto firms.

“There’s going to be market consolidation,” Zhou said. “That's why these guys are shutting down. Because even if they know they could afford MiCA, they're like, 'WTF, I need [MiFID, EMI] to make money, and I need to make a whole lot of investment in compliance infrastructure to be able to be profitable?’”

MiCA itself is undergoing change, with some country regulators calling for tighter, more centralized control and granting increased oversight to bodies such as the European Securities and Markets Authority (ESMA). And when it comes to structured products, ESMA recently reminded crypto firms offering perpetual futures that some of these products may fall outside the rules.

Zhou said Bybit chose a stringent regulator in Austria’s FMA, a decision he said will pay dividends down the line. Each country interprets MiCA differently, he said: “Some countries interpret it as a way to attract new business; some want heavy regulation. So you actually have different levels of strictness.”

As for bringing ESMA into the mix, Bybit is neutral, Zhou said.

“There are talks about a more level playing field,” he said. “But there could be disadvantages. Because when you have a local regulator they are easy to get to. If we have any issues, we just send an email and go to FMA in Vienna. But if everyone's in Paris, then you have to line up. There are more CASPs, increased bureaucracy, decreased efficiency.”