Why MiCA Rejects Fiat-Only Crypto Exchange Models

In ESMA’s Q4 Q&A session, the following question was posed: Should the business model whereby a CASP provides exchange services but only ever allows clients to collect their balance in fiat currency be allowed? 

In short, the European Securities and Markets Authority (ESMA) responded that this sort of activity would not be permitted under the Market in Crypto Assets Regulation (MiCA). 

In the following blog, we explain why this is not permitted with supporting regulations.

Are Fiat-Only Crypto Payout Models Permitted by MiCA?

ESMA’s “No” Reflects MiCA’s Core Principles

Firstly, MiCA defines a crypto asset as a “digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology.” (Article 3 (1)(5)).

In other words, if a customer buys a crypto asset and is unable to transfer it in its digital form, the service provided is not an exchange of crypto assets, as the asset is never transferred to the client. Therefore, this service does not qualify as a crypto-asset exchange service.

Secondly, per Article 3 (1)(15), a crypto asset service provider (CASP) is defined as “a legal person or other undertaking whose occupation or business is the provision of one or more crypto-asset services to clients on a professional basis [...]”. 

This means that to qualify as a CASP, the services offered must relate to assets that meet MiCA’s definition of a crypto asset. If a CASP provides services solely linked to fiat payouts, the service cannot be classified as a MiCA crypto-asset service.

What about MiCA Article 3 (1)(16.c)?  

However, under Article 3(1)(16.c), readers are met with ‘crypto-asset service’ means any of the following services and activities relating to any crypto-asset [...] exchange of crypto-assets for funds”.  

The definition of a CASP is to provide one or more crypto asset services; if CASPs were providing the exchange of crypto assets to funds, they would meet MiCA’s requirements, so technically, this should be allowed. 

But there is an important distinction: the use of the word exchange. According to ESMA, when an asset is purchased, it must be delivered to the customer. 

“Where a client purchases a crypto-asset, the CASP should transfer that crypto-asset to the client.” ESMA, MiCA Q&A, 2026.

In other words, if a customer buys a crypto asset through a regulated provider, the asset must be delivered to the customer, implying that it changed ownership and the customer had control over it, and only then is it exchanged for funds. 

In the case of a customer purchasing crypto assets from a CASP, then the CASP holding the asset, and the customer finally withdrawing the fiat value of the purchased asset, no true exchange was ever made. 

This activity resembles more price exposure than a service defined by MiCA. Therefore, a model in which a customer receives only the fiat value is inconsistent with MiCA’s principles. 

Key Takeaways 

A model in which customers can purchase crypto assets but can redeem only fiat values does not qualify as a crypto asset service under MiCA.
Moreover, ESMA explicitly states: “purchasing a crypto-asset gives rise to an obligation on the CASP to transfer the crypto-asset to the client.”

Under MiCA, customers purchasing crypto must receive the asset, be allowed to withdraw it to another wallet, and have the option to exchange it for fiat. Once again, this exchange to fiat can only occur once the crypto asset has been made available to the customer. 

Purchasing crypto with the intention of withdrawing the fiat value resembles price exposure rather than genuine ownership of the asset, and is treated as a separate financial product by MiCA. 

Sources: 

ESMA Questions and Answers.
Available at: https://www.esma.europa.eu/publications-data/questions-answers/2550

MiCA (2023/1114) Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1114&pk_keyword=Crypto%20assets&pk_content=Regulation&pk_cid=EURLEX_todaysOJ