What happened 

The value of cryptocurrencies fell on Friday morning after the European Union moved forward with some potentially restrictive regulations. Crypto fell across the board, but the big names were significantly impacted. 

Bitcoin (BTC -5.20%) fell as much as 4.2% in the last 24 hours as of 12:30 p.m. ET, Ethereum (ETH -8.43%) fell as much as 3.4%, and Dogecoin (DOGE -15.72%) dropped 5.1%. Values did recover slightly and were trading about flat for the day. 

Digital image of Bitcoin falling apart.

Image source: Getty Images.

So what 

EU lawmakers voted in favor of a bill that would end anonymous cryptocurrency transactions through what's called a non-custodial wallet. These wallets are used by cryptocurrency and NFT owners to send transactions on the blockchain and typically aren't tied directly to a personal owner. That could change with know-your-customer (KYC) requirements. 

The move undercuts some of the value many see in cryptocurrency living outside of the traditional financial system. There aren't gatekeepers today and transactions can happen with anyone in the world. The EU is saying it doesn't like that anonymity. 

This could open a number of unintended consequences for cryptocurrencies, including more centralization among cryptocurrency exchanges and marketplaces. It's not clear if that would hurt adoption or innovation, but it's clearly not what the crypto market was looking for from lawmakers. 

Now what 

KYC regulations aren't law yet, so they may still change, but this is certainly an incremental negative for cryptocurrencies. It was generally thought that the U.S. and EU were moving toward more friendly regulations for cryptocurrencies, but this would undercut some of the ability for the industry to innovate and develop. 

One detail that's getting a lot of attention is the fact that transactions over 1,000 euros in value would need to be reported to authorities, even if they're coming from someone who doesn't live in the EU. That's the kind of transaction cost that can reduce adoption and innovation on the blockchain. 

What's interesting about the market's reaction is that values did bounce back in the last half day or so and seem to be holding up relatively well. The EU's moves may not be so bad in part because most of the innovation in cryptocurrencies is actually happening in the U.S. and is being backed by U.S. venture capital firms, just like the last 30 years of tech stocks were. 

We know that regulation is coming to the crypto market and that's probably a good thing overall as the industry matures. But there will also be ups and downs as different countries adopt different rules over time. I am not going to read too much into this current law and will watch as lawmakers decide what to do, because cryptocurrency is growing and lawmakers and users alike are going to have to grapple with how to grow most effectively.