Bitgo CEO Mike Belshe is warning that the European Union's Markets in Crypto Assets regulation could do more harm than good for stablecoins. His claim: by forcing issuers to park reserves in fractional reserve banks, MiCA imports the very risks of the fiat system crypto was designed to escape.
Reserves at fractional banks
Under MiCA, stablecoin issuers must hold a significant portion of their reserves in cash deposits at commercial banks. Those banks operate on a fractional reserve model — they lend out most of the money deposited. Belshe argues that this ties stablecoin stability directly to the health of the banking system. If a bank faces a run or fails, the stablecoin's backing could be at risk. That's a vulnerability he says the framework should have avoided.
Systemic risk for stablecoins
Belshe claims MiCA endangers the entire stablecoin ecosystem. Instead of isolating crypto from fiat vulnerabilities, the regulation exposes it to them. Stablecoins, which are supposed to offer a digital store of value independent of traditional finance, would instead be tied to the same systemic risks that affect the broader financial system. The criticism from Bitgo's CEO adds to a growing debate over how far regulators should go in linking crypto to conventional banking infrastructure.
The comments highlight a key tension in the push to regulate digital assets. MiCA aims to bring stability and consumer protection, but Belshe's critique suggests the cure may carry its own risks. Whether regulators will adjust the reserve requirements remains an open question.
